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federal

Reserve Bank of Dallas

DALLAS, TEXAS

75222

Circular No. 82-140
O ctober 27, 1982

DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
MONEY MARKET DEPOSIT ACCOUNT

TO ALL MEMBER BANKS AND OTHERS CONCERNED
IN THE ELEVENTH FEDERAL RESERVE DISTRICT:
The D epository Institutions D eregulation C o m m itte e (DIDC) has an­
nounced a 15-day public c o m m e n t period on the new money m arket deposit account.
The new insured money market a c cou n t is designed to be c o m p e titiv e with money
market mutual funds.
In terested parties are invited to subm it c o m m e n ts concerning the
proposed rules to Gordon Eastburn, A ctin g E x e c u tiv e S ecretary, Depository
Institutions D eregulation C o m m itte e , Room 1058, D ep artm en t o f the Treasury, 15th
S tr e e t and Pennsylvania Avenue, N.W., Washington, D .C ., 20220. C o m m en ts should
re fe r to D o c k e t Number D -0026 and must be r e c e iv e d by N ovem ber 3, 1982.
A tta ch ed are co p ies o f the DIDC's press r e le a se and the m aterial as
su b m itted for publication in the Federal R e g is te r . Q uestions regarding the m aterial
con tain ed in this circular should be d ir ec te d to this Bank's Legal D epartm ent,
E xtension 6171.
Additional co p ies o f this circular will be furnished upon request to the
D ep artm en t o f C om m unications, Financial and C om m unity A ffairs, Extension 6289.
Sincerely yours,

William H. W allace
First Vice President

Banks and others are encouraged to use the following incoming W A TS numbers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extension referred to above.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
W
ashington, D.C. 20220

PRESSRELEASE

October 18, 1982

Money Market Deposit Account
In the attached Federal Register notice the Depository
Institutions Deregulation Committee (DIDC) announces a 15 day
public comment period on the new money market deposit account.
The Garn-St Germain Depository Institutions Act of 19 82
directs the DIDC to authorize a new Federally insured account to
be offered by commercial banks, savings and loan associations
and mutual savings banks that is directly competitive with money
market mutual funds.
The Garn-St Germain Act requires that this account: (1) have
no limitation on the maximum rate of interest payable; (2) be
in effect no later than 60 days from enactment of the GarnSt Germain Act; (3) not be subject to transaction account reserve
requirements (as defined by the Board of Governors of the Federal
Reserve System, as of August 1, 1982) even though no minimum
maturity is required, and even though up to three preauthorized
or automatic transfers plus three third-party transfers are
permitted per month; and (4) be "directly equivalent to and com­
petitive with money market mutual funds registered with the
Securities and Exchange Commission under the Investment Company
Act of 1940."
The Committee is requesting comments on features not
specifically set forth in the Garn-St Germain Act; e.g., minimum
initial denomination, maintenance balance, denomination of with­
drawals, whether institutions should be required to reserve the
right to require seven days' notice of withdrawal, and whether
loans should be permitted to meet the minimum denomination
requirement.

Attachment

COMPTROLLER OF THE CURRENCY
FEDERAL RESERVE BOARD

FEDERAL DEPOSIT INSURANCE CORPORATION
NA TIO NAL CREDIT UNION ADM INISTRATIO N

FEDERAL HOME LOAN BANK BOARD
DEPARTMENT OF THE TREASURY

D EPO SITO RY IN S T IT U T IO N S DEREGULATION COMMITTEE

12 CFR Part 1204
[Docket No. D-0026]
Money Market Deposit Account
AGENCY:

Depository Institutions Deregulation Committee.

ACTION:

Proposed rulemaking.

SUMMARY:

The Depository Institutions Deregulation Committee

("Committee") is required by the Garn-St Germain Depository
Institutions Act of 1982 ("Garn-St Germain Act”) to authorize a
new insured deposit account, available to all depositors, to
compete with money market mutual funds.
requires that this account:
rate of interest payable;

The Garn-St Germain Act

(1) have no limitation on the maximum

(2) be in effect no later than 60

days from enactment of the Garn-St Germain Act;

(3) not be

subject to transaction account reserve requirements (as defined
by the Board of Governors of the Federal Reserve System, as of
August 1, 1982) even though no minimum maturity is required, and
even though up to three preauthorized or automatic transfers
plus three third-party transfers are permitted per month; and
(4) be "directly equivalent to and competitive with money market
mutual funds registered with the Securities and Exchange Commission
under the Investment Company Act of 1940." No minimum denomination
was set forth in the Garn-St Germain Act, although the Conference
Report suggested it be no more than $5000.

The Committee is

requesting comments on features not specifically set forth in

the Garn-St Germain Act; e.g., minimum initial denomination,
maintenance balance, denomination of withdrawals, whether
institutions should be required to reserve the right to require
seven days' notice of withdrawal, and whether loans should be
permitted to meet the minimum denomination requirement.
DATE:

Comments must be received by (15 days from the date of

publication).
ADDRESS:

Interested parties are invited to submit written data,

views, or arguments concerning the proposed rules to Gordon
Eastburn, Acting Executive Secretary, Depository Institutions
Deregulation Committee, Room 1058, Department of the Treasury,
15th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20220.
All material submitted should include the Docket Number D-0026 and
will be available for inspection and copying upon request, except
as provided in § 1202.5 of the Committee's Rules Regarding Availa­
bility of Information (12 CFR § 1202.5).
FOR FURTHER INFORMATION CONTACT:

Alan Priest, Attorney, Office of

the Comptroller of the Currency (202/447-1880); Joseph DiNuzzo,
Attorney, Federal Deposit Insurance Corporation (202/389-4147);
Rebecca Laird, Senior Associate General Counsel, Federal Home
Loan Bank Board (202/377-6446); Paul S. Pilecki, Senior Attorney,
Board of Governors of the Federal Reserve System (202/452-3281);
or Elaine Boutilier, Attorney-Adviser, Treasury Department
(202/566-8737).
LIST OF SUBJECTS IN 12 CFR Part 1204:
SUPPLEMENTARY INFORMATION:

Banks, banking.

The Depository Institutions Deregula­

tion Act of 1980 (Title II of P.L. 96-221; 12 U.S.C. §§ 3501 et
seq.) ("DIDA") was enacted to provide for the orderly phaseout

and ultimate elimination of the limitations on the maximum rates
of interest and dividends that may be paid on deposit accounts
by depository institutions as rapidly as economic conditions
warrant.

Under DIDA, the Committee is authorized to phase out

interest rate ceilings by any one of a number of methods includ­
ing the creation of new account categories not subject to interest
rate limitations or with interest rate ceilings set at market
rates of interest.
Section 327 of the Garn-St Germain Act specifically requires
the Committee to authorize a new insured deposit account, which
"shall be directly equivalent to and competitive with money
market funds." The Garn-St Germain Act prohibits any limitation
on the maximum rate of interest payable on the new account.

The

Garn-St Germain Act also states that the account shall not be
subject to reserve requirements on transaction accounts even though
no minimum maturity is required and even though up to three
«

preauthorized or automatic transfers and three transfers to
third parties are permitted.
The Committee has solicited public comment on short-term
deposits previously.

After the June 25, 1981 meeting, the

Committee requested comments on the desirability of authorizing
a new deposit instrument with characteristics similar to money
market mutual funds, although the Committee did not put forth a
specific proposal at that time.
1981).

46 Fed. Reg. 36712 (July 15,

After the September 22, 1981 meeting, the Committee

requested comments on three specific proposals for short-term
time deposits.

46 Fed. Reg. 50804 (October 15, 1981).

One of the short-term accounts proposed in the October 15,
1981 notice was a $5000-minimum denomination NOW account, which
is similar in concept to the account set forth in the Garn-St
Germain Act.

Consequently, the Committee has received comments

on an instrument that possesses essentially all of the features
of the congressionally-mandated account.

Certain features are

mandated by the Garn-St Germain Act and cannot be changed.
However, some features were left by Congress to the Committee's
discretion.

Accordingly, comment is requested only on features

not specified in the Act.

Public comment is being requested in

view of the interest expressed by competitors of depository
institutions for an opportunity to comment on the features the
Committee may designate.
The new account proposed by the Committee would have the
following features as required by the Garn-St Germain Act and its
legislative history:
ceiling;
(4)

(1) no minimum maturity;

(2) no interest rate

(3) an initial minimum denomination no greater than $5000;

allow up to three preauthorized or automatic transfers and three

other third-party payments (including drafts) per month without be­
ing subject to transaction account reserve requirements;

(5) avail­

able to all depositors; and (6) insured by the FDIC or FSLIC.

The

Committee is considering whether or not to impose a minimum ini­
tial denomination and/or maintenance balance of less than $5000
and requests comments on this feature.

In connection with the

minimum balance, the Committee may impose an interest rate limi­
tation (such as the NOW-account rate) on accounts which fall below
the minimum maintenance balance, and prohibit loans to meet the

minimum initial denomination.

5 The account will permit limited

withdrawals to be made, and certain requirements are being con­
sidered by the Committee in regard to these withdrawals, e . g .
(1) a minimum denomination on drafts;

(2) unlimited withdrawals

by the depositor by mail, telephone, messenger or in person,
except that telephone transfers to third parties or another de­
posit account of the depositor would be regarded as preauthorized
transfers;

(3) require an institution to monitor on an ex post

basis to determine compliance with the withdrawal limitations;
and (4) require an institution to reserve the right to require
seven days' notice prior to withdrawal.

Although the maximum

rate of interest paid on the account may not be limited, the
Committee is concerned that institutions will circumvent the re­
quirements on other time deposits by guaranteeing a rate of in­
terest for a substantial time period, therefore the Committee is
considering a limitation on the time period for which an institu­
tion may guarantee an interest rate.

The Committee also may

restrict overdraft credit arrangements offered in connection
with this new account.
The Committee requests comments on the new account as pro­
posed above, and particularly requests comments on the following
issues:
(a)

What should be the minimum initial denomination?
(The Conference Report suggests that it be no more
than $5000, and interest has been expressed in a
$2500 minimum denomination.)

(b)

Should the maintenance balance differ from the
initial denomination?

If so, what should it be?

What would be the possible consequences of having
no maintenance balance?

Would it be operationally

easier to have the maintenance balance the same as
the minimum initial denomination?
(c)

Should an institution be required to pay a lower
rate of interest, such as the NOW-account rate, for
accounts which fall below the maintenance balance?

(d)

Should a minimum denomination be set for drafts?
If so, should it be $100, $500, or some other
amount?

(e)

Should depository institutions be required to
reserve the right to require seven days'

(or some

other time span) notice prior to withdrawal?
(f)

Should loans be permitted to meet the minimum
initial denomination?

(g)

Should any restrictions be placed on additional
deposits?

Should sweeps from other accounts be

permitted?
(h)

Should the time period for which an institu­
tion can guarantee an interest rate be limited?
If so, what should it be?

Or should the account

have a maximum maturity?
(i)

How should the limitation on the number of with­
drawals per month be enforced?

For example, should

the institution be required to monitor accounts on an
ex post basis to determine compliance?

How should

"month" be defined for purposes of this limitation?
Should the date of payment by the institution or the

- 7 date written on the draft control for purposes of com­
pliance with the three drafts per month limitation?
(j)

Should any restrictions be placed on overdraft
credit arrangements offered in connection with
this account?

(k)

Should unlimited withdrawals by mail, telephone, mes­
senger, or in person be permitted to the depositor?
(The staff believes that telephone transfers should
be regarded as preauthorized transfers if the transfer
is to a third person or to another deposit account of
the same depositor.)

(1)

Is thirty days (or some shorter or longer period)
adequate lead time for depository institutions to
implement operational changes for this account?

The issues set forth above are not intended to limit the
area of comment.

The Committee requests comments on those

questions and on any other aspect of the account which the public
wishes to address, particularly with respect to characteristics
that would make this account "directly equivalent to and competi­
tive with" money market funds.
The Committee has considered the potential effect on small
entities of the proposal to establish a new deposit instrument,
as required by the Regulatory Flexibility Act (5 U.S.C. § 603 et
seq.).

In this regard, the Committee's action, in and of itself,

would not impose any new reporting or recordkeeping requirements.
Consistent with the Committee's statutory mandate to eliminate
deposit interest rate ceilings, this proposal would enable all

- 8 depository institutions to compete more effectively in the market­
place for short-term funds.

Depositors generally should benefit

from the Committee's proposal, since the new instrument would
provide them with another investment alternative that pays a
market rate of return.

If low-yielding deposits shift into

the new account, depository institutions might experience increased
costs as a result of this action.

However, their competitive

position vis-a-vis nondepository competitors would be enhanced
by their ability to offer a competitive short-term instrument
at market rates.

The new funds attracted by the new instrument

(or the retention of deposits that might otherwise have left the
institution) could be invested at a positive spread and would
therefore at least partially offset the higher costs associated
with the shifting of low-yielding accounts.
The Committee is asking for comments for a 15-day period.
This short comment period is made necessary by the fact that the
Garn-St Germain Act requires the new account to be available with­
in 60 days of enactment.

Because the Committee desires to give

the depository institutions adequate time to prepare and market
the account, time for comment must be limited to allow time for
compilation and consideration of the comments, a Committee vote
on the features and publication of the final rule.

Therefore,

comments on this account should be submitted promptly.
By Order of the Committee, October 15, 1982.

Gordon Eastburn
Acting Executive Secretary