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Federal R eserve Bank
OF DALLAS
DALLAS, TEXAS 75222
April 9, 1986
C ircular 86-34
TO:
The Chief Executive Offi cer of a l l
member banks and others concerned in
the Eleventh Federal Reserve D i s t r i c t
SUBJECT
Final Amendments to Regulation D, Reserve Requirements of Depository
Institutions, and Regulation Q, Interest on Deposits
DETAILS
The Board of Governors issued f i n a l amendments to Regulations D and Q
e f f e c t i v e April 1, 1986. The amendments a r i s e from the e x p i r a tio n on
March 31, 1986, of the s t a t u t o r y a u t h o r i t y to s e t i n t e r e s t r a t e c e i l i n g s on
time and savings deposits and to pre sc ribe ru les regarding e a r l y withdrawals
from time deposits which are c u r r e n t l y s e t out in Regulation Q. The
amendments preserve the c u r r e n t treatment of money market deposit accounts
(M DAs) and r ev ise minimum p e n a lt ie s for e a r ly withdrawal of c e r t a i n d e p o s i ts ,
M
and they are s e t out in Regulation D to preserve the c u r re n t scheme for
reserve requirement purposes.
The Board will be amending the a d v e r ti s in g r u le in Regulation Q a t a
l a t e r date.
ATTACHMENTS
A Board press r e le a s e and Federal Register document are attach ed .
For additional copies of any circular please contact the Public Affairs Department at (214) 651-6289. Banks and others are
encouraged to use the following Incoming WATS numbers in contacting this Bank (800) 442^7140 (intrastate) and (800)
527-9200 (interstate).
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
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MORE INFORMATION
For f u r t h e r information on Regulation D, please co n tact Robert G.
Feil a t (214) 651-6690 or Evelyn E. Thomas a t (214) 651-6132. For f u r t h e r
information on Regulation Q, please c onta ct t h i s Bank's Legal Department a t
(214) 651-6228.
Sin ce re ly yours,
FEDERALRESERVEpressrelease
For Immediate r e le a s e
March 19, 1986
The Federal Reserve Board today Issued f i n a l amendments t o i t s
Regulations D (Reserve Requirements of Depository I n s t i t u t i o n s ) and Q
( I n t e r e s t on Deposits) t h a t preserve the cu rre nt trea tm en t of money market
depo sit accounts (M DAs) and revis e minimum p e n a l t i e s f o r e a r ly withdrawal
M
of c e r t a i n d e p o s i ts .
In 1980 Congress passed th e Depository I n s t i t u t i o n s Deregulation
and Monetary Control Act which c a l l e d f o r th e ord erl y phase-out and ultimate
eli m in a tio n of I n t e r e s t r a t e c e i l i n g s on a l l depos it accounts, except f o r
demand d e p o s i t s , under the d i r e c t i o n of th e Depository I n s t i t u t i o n s Deregulation
Committee (DIDC).
Under present law, the DIDC term inate s and a l l i n t e r e s t r a t e
c e i l i n g a u th o r ity ex pires March 31, 1986, as does th e a u th o r it y t o require
e a r ly withdrawal p e n a l t i e s under Regulation Q and the e x p l i c i t mandate t o o f f e r
M DAs.
M
The f i n a l amendments to Regulations D and Q adapt t o the e x p ir a tio n
of DIDC a u t h o r i t y by continuing t o exempt de posits with the e x i s t i n g withdrawal
and t r a n s a c t i o n f e a t u r e s of savings and M D s from t r a n s a c t i o n account reserve
MA
requirements and from th e p r o h i b it i o n of i n t e r e s t on demand d e p o s its .
That i s ,
savings d epos its and M D s w il l continue t o q u a lif y f o r the zero or 3 percent
MA
(nonpersonal) time dep os it re se rve requirement i f , f o r savings d e p o s i ts , no
more than t h r e e pre authori ze d, automatic, or telephone t r a n s f e r s are allowed
each month, and f o r M DAs, no more than s i x t r a n s f e r s per month are author ized ,
M
of which th r e e can be by check, d r a f t or de bit card.
Holders of both accounts
s t i l l will be able t o make unlimited withdrawals or i n te r -a c c o u n t t r a n s f e r s by
mail, messenger, or in person at the depository i n s t i t u t i o n or at an ATM
.
(over)
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The amendments a ls o remove th e $150,000 l i m i t a t i o n on business savings
accounts, bringing t h e i r tre atme nt in t o l i n e with M DAs.
M
I f e i t h e r savings dep os its
or M D s held by businesses are authorized to exceed th e t r a n s f e r l i m i t a t i o n s
MA
described above, they may be considered demand deposits on which i n t e r e s t could not
be paid because businesses are not e l i g i b l e t o have N W or ATS accounts.
O
C ertain e a r l y withdrawal p e n a l t i e s are r e ta in e d in the revised Regulation
D t o help maintain d i s t i n c t i o n s between t r a n s a c t i o n accounts and time d ep o s its ,
and between nonpersonal time deposits of d i f f e r e n t m a t u r i ti e s f o r reserve
requirement purposes.
Early withdrawal p e n a l t i e s of at l e a s t seven days' i n t e r e s t
are required on any withdrawal permitted within th e f i r s t s i x days a f t e r a time
depos it i s made.
time d e p o s i ts .
This requirement ap pli es t o both personal and nonpersonal
For nonpersonal time depo sits with o r ig in a l m a t u r i ti e s or notice
periods of 18 months or more t h a t allow withdrawal w ithin the f i r s t 18 months of
th e d e p o s i t , a one month's i n t e r e s t penalty i s r e quire d.
The new e a r ly withdrawal ru le s are e f f e c t i v e April 1, 1986, f o r most
institutions.
Cred it unions and ot her depos itory i n s t i t u t i o n s not now su bject
t o r e g u l a t o r i l y presc ribed early withdrawal p e n a l t i e s w ill have u n t i l January 1,
1987, to begin imposing such p e n a l t i e s on time depo sits opened, renewed, or
added t o on or a f t e r t h a t d a te .
Copies of th e Board's no tice s are a tta c h e d .
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Attachments
Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations
9629
FEDERAL RESERVE SYSTEM
12 CFR Part 204
[Reg. D, Docket No. R-0565]
Definition of Deposit and Technical
Amendments
Board of Governors of the
Federal Reserve System.
a c t io n : Final rule.
AGENCY:
Pursuant to itsauthority
under section 19 of the Federal Reserve
Aet, as amended, the Board is adopting
final rules amending 12 CFR Part 204
(Regulation D—Reserve Requirements of
Depository Institutions). Concurrently,
the Board is adopting a final rule
amending 12 CFR Part 217 (Regulation
Q—Interest on Deposits). The
amendments are being adopted after
consideration of public comments
received on proposed amendments to
Regulation D (51 FR 27, January 2,1986)
and Regulation Q (51 FR 31, January 2,
1986).
The amendments are due to the
expiration on March 31 ,1 9 8 6 , of the
Depository Institutions Deregulation
Committee (“DIDC”) and with it the
authority to set regulatory interest rale
ceilings on deposits other than demand
deposits. In addition, the DIDC’s rules
authorizing money market deposit
accounts ("MMDAs”) expire on that
date along with the provisions in
Regulation Q prescribing early
withdrawal penalties. The statutory
prohibition against the payment of
interest on demand deposits remains in
effect.
Generally, the amendments to
Regulation D are intended to preserve
the current scheme of reserve
requirements for transaction accounls,
savings deposits (including MMDAs),
and time deposits. The amendments to
Regulation D include revised minimum
early withdrawal penalties designed to
distinguish between certain types of
deposits for reserve requirement
purposes. The amendments also include
minor changes to the definitions in
Regulation D and clarification of
existing requirements for classifying
accounts.
At this time, the Board is also
adopting other technical amendments to
Regulations D and Q. The Board will be
amending the advertising rule in its
Regulation Q at a later date.
EFFECTIVE DATE: April 1, 1986.
sum m ary :
FOR FURTHER INFORMATION CONTACT:
John Harry Jorgenson, Senior Attorney
(202/452-3778) or Patrick J. McDivitt,
Attorney (202/452-3818), Legal Division,
Thomas Simpson, Deputy Associate
9630
Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations
Director (202/452-3546), Division of
Research and Statistics, or Eamestine
Hill or Dorothea Thompson,
Telecommunication Device for the Deaf
(TDD) (202/452-3544), Board of
Governors of the Federal Reserve
System, Washington, DC 20551.
SUPPLEMENTARY INFORMATION: Section
19(b) of the Federal Reserve Act, 12
U.S.C. 461(b), provides the Board with
the authority to impose reserve
requirements on deposits held by
depository institutions, and section 19(a)
of that Act, 12 U.S.C. 461(a), gives the
Board the authority to define terms used
in section 19 and to prevent evasions of
section 19. Pursuant to this authority, the
Board promulgated Regulation D. In the
past, Regulation D definitions of deposit
categories have been used in the
regulation of the payment of interest on
deposits under the Board’s Regulation
Q—Interest on Deposits (12 CFR Part
217), and this practice will continue.
One such definition is the money market
deposit account (“MMDA”).1
The Gam-St Germain Depository
Institutions Act of 1982 (Pub. L. 97-320)
directed the DIDC to create the MMDA.
As implemented by the DIDC, the
MMDA permits depositors limited
authority to make third party payments
from the account. Senate Joint
Resolution 97-271 (Pub. L. 97-457) also
provided that the MMDA would not be
considered a “transaction account” for
purposes of Regulation D, provided that
third-party payments were limited.
Consequently, Regulation D excluded
the MMDA from the definitions of
“transaction account” and “demand
deposit” even though funds could be
withdrawn from an MMDA by check or
draft.
On March 31,1986, the regulations of
the DIDC implementing the MMDA
expire along with the regulatory
limitations on the payment of interest on
deposits and the prescribed early
withdrawal penalties.2
In order to take these changes into
account and to make clarifying and
technical changes, the Board is
amending its Regulation D. The
amendments are designed to: (1)
Preserve the MMDA, largely in its
current form; (2) establish limited early
withdrawal penalties for reserve
requirement purposes; and (3) remove
the $150,000 limit on business savings
1 Similar categories were established under
comparable authority of the Federal Deposit
Insurance Corporation and the Federal Home Loan
Bank Board.
* Statutory limitations, such as the prohibition
against the payment of interest on demand deposits
and the eligibility requirements for NOW and ATS
accounts, are not affected by the expiration.
deposits and clarify the limit on
telephone transfers from such accounts.
In so doing, the amendments redefine
the terms “transaction account,”
“savings deposit” and “time deposit”
and, with certain exceptions, preserve
the current scheme of reserve
requirements on deposits. The
amendments also make other clarifying
and technical changes to Regulation D.
The principal amendments are
discussed in detail below.
Preservation of the MMDA
The current Regulation D incorporates
by reference the regulatory description
of the MMDA adopted by the
Depository Institutions Deregulation
Committee (“DIDC”). Because the DIDC
and its rules expire on March 31,1986,
Regulation D, as amended, will include
the descriptive characteristics of the
MMDA for the purposes of the
regulation. Generally, the MMDA
continues to be limited to six
preauthorized, automatic, or telephone
transfers per month. Three of the six
transfers may be by check payable to
third-parties. Consequently, an existing
MMDA will continue to be treated as a
“savings deposit” under the amended
rule, provided the applicable transfer
limitations are adhered to. Generally,
comments favored retention of the
current MMDA treatment.
The amendments also liberalize the
treatment of certain transfers from
MMDAs. Under existing rules, loan
payments from an MMDAs. Under
existing rules, loan payments from an
MMDA to the institution itself are
counted toward the six transfer limit,
while such payments made from an
ordinary savings account are not
counted-toward the three transfer limit
currently applicable to such accounts for
preauthorized or telephone transfers.
Consequently, a depositor may make
unlimited loan repayments from a
savings account but only three per
month from an MMDA. Several
comments suggested treating both
accounts similarly to reduce monitoring
and administrative costs. The revised
regulation provides for unlimited loan
payments to the institution from an
MMDA as well as from a savings
deposit.
Currently, any account from which a
payment can be made to a third party by
debit card is a “transaction account.”
The Board’s proposal would have
permitted debit card transfers to third
parties from MMDAs so long as they
were counted towards the three check
or draft limitation. The revised
Regulation D incorporates this change.
Time Deposits and Early Withdrawals
Currently, section 19(j) of the Federal
Reserve Act provides that a depositor
may withdraw funds from a time deposit
before maturity only under the rules and
regulations of the Board. Under this
authority, Regulation Q currently
prescribes certain minimum penalties
for early withdrawals from time
deposits. Early withdrawal penalties
help to maintain the distinction between
a “transaction account” and a “time
deposit" and to maintain the differences
in maturities on time deposits primarily
to enforce interest rate ceilings. The
express statutory authority to prescribe
rules regarding early withdrawals from
time deposits expires on March 31,1986
and the Board no longer will require
such a penalty under that authority.
Nevertheless, the Board still believes
that the early withdrawal of funds from
time deposits undermines the distinction
between a “transaction account” and a
"time deposit” and between time
deposits of varying maturities for
monetary policy purposes under
Regulation D.
The Board is amending its definition
of “time deposit” to provide that a time
deposit with a minimum maturity of
seven days or more from which
withdrawals are permitted within the
first six days after the date of deposit
will be a “time deposit” only if it meets
the other criteria for a time deposit and
is subject to a minimum early
withdrawal penalty equal to seven days’
simple interest on the amount
withdrawn.
Under Regulation D, nonpersonal time
deposits with a maturity of one and onehalf years or more are subject to a zero
percent reserve requirement while
nonpersonal time deposits with a
shorter maturity are subject to a three
percent reserve requirement. If a
nonpersonal time deposit has a stated
maturity or notice period of one and
one-half years or more and early
withdrawals are permitted after six
days but within one and one-half years
after the date of deposit, it must be
subject to a minimum penalty equal to
one month’s simple interest on the
amount withdrawn in order to be
treated as a "nonpersonal time deposit”
with a maturity of one and one-half
years or more for purposes of Regulation
D.
Any deposit failing to meet either the
definition of“ time deposit” or "savings
deposit" will be considered a
“transaction account” and will be
subject 4o the transaction account
reserve requirements.
Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations
The proposal had provided that after
a partial early withdrawal, a deposit
ceased to be a time deposit unless the
remaining balance w as placed in a new
account. A number of commentators
indicated that it would be burdensome
to establish separate new accounts in
such cases. Accordingly, the final rule
provides that the remaining balance in a
time deposit after a partial early
withdrawal will continue to be regarded *
as a “time deposit” if subsequent early
withdrawals are subject to the seven
day penalty for withdrawals made
within six days after the last partial
withdrawal.
Several commentators expressed
concern over the implementation of the
early withdrawal penalty provisions in
the definition of “time deposit.” This
issue w as of particular concern to the
National Credit Union Administration
which noted that for Federal credit
unions, limitations on early withdrawals
were deregulated in 1982. The NCUA
requested a transition period to allow
modification of credit union forms.
In general response to these
comments, under the final rule, existing
time deposits will continue to be time
deposits. The new early withdrawal
penalties must be imposed on accounts
opened on or after April 1,1986. In
response to the NCUA’s concerns, the
final rule-provides a longer
implementation period for institutions
that currently lack a regulatory
requirement for such a penalty, as in the
case of Federal credit unions or
nonfederally insured institutions that
have no such penalty prescribed by
state law or regulation. For these
institutions, the penalty must be
included in any account opened,
renewed or to which additional deposits
are made on or after January 1 ,1987.3
Commentators also suggested
retention of the current exceptions to the
early w ithdrawal penalty rules. The
final rule incorporates into Regulation D
the exceptions for early withdrawals
penalties currently specified by
Regulation Q.
3 For institutions with an existing stock of deposit
contract forms, the Board believes that early
withdrawal penalties may be implemented with an
addendum attached to the existing form. For
example, the following language could be used to
implement the seven day penalty: "Addendum to
[time deposit or the institution's name for such
deposit) issued to (name o f customer) on (date).
This deposit has a maturity of (state maturity), if it
is withdrawn within the six (6) calendar days
following the date of deposit, or within six (6) days
following any partial withdrawal made prior to the
maturity date, such withdrawal shall be subject to a
minimum penalty of seven (7) days' simple interest
on the amount withdrawn."
Additional Early Withdrawal Penalties
In its proposal, the Board indicated an
interest in retaining early withdrawal
penalties in order to assist institutions in
matching the maturities of assets and
liabilities for purposes of safety and
soundness of the institutions. A number
of comments supported this concept.
The Board also indicated that it would
consult with the federal depository
institution regulatory agencies
concerning the appropriate structure and
use of penalties for this purpose. This
issue has been raised with the Federal
Deposit Insurance Corporation, the
Comptroller of the Currency, and the
Federal Home Loan Bank Board. In
proposed regulations adapting to the
expiration of the DIDC, the Federal
Home Loan Bank Board also requested
comment on the retention of early
withdrawal penalties for this purpose.
The Board intends to study the
economic and legal issues relating to
imposing early withdrawal penalties for
safety and soundness purposes in
cooperation with the other federal
depository institution regulatory
agencies. In the interim, the Board
continues to believe that such penalties
serve a useful purpose in maintaining
the stability of an institution’s liabilities,
and institutions are encouraged to
consider including them in their time
deposit contracts.
Transfers From Savings Deposits
Under existing regulations, a
depositor may make up to three
preauthorized or telephone transfers per
month from a savings deposit to another
account of the depositor or a third
person. MHDAs permit up to six
preauthorized, telephone or automatic
transfers per month.
The final rule permits automatic
transfers to be included within the three
transfers per month permitted for
savings deposits, in order to make the
transfer limitations more consistent with
the transfer limitations applicable to
MMDAs.
Enforcement of Transfer Limitations
Under the proposed rule and the final
rule, the definition of “savings deposit”
includes an ordinary savings account
and an MMDA unless the depositor is
authorized to exceed the transfer
limitations for such accounts. If the
depositor is authorized to exceed the
transfer limitation, the account would be
considered to be a “transaction
account” for the purposes of Regulation
D reserve requirements. (Such account
would not be a “demand deposit” for
purposes of the Regulation Q prohibition
against payment of interest on demand
9631
deposits if the depositor is eligible to
hold another type of transaction
account, such as a NOW account or an
ATS account, that would permit the
particular excess transfers.)
Commentators expressed concern that
under the proposal, an excess transfer
might result in automatic reclassification
of the account even though the transfer
w as an isolated occurrence and the
depository institution could not prevent
the occasional excess transfer at the
time it occurred. The final rule
incorporates the procedures for
monitoring accounts on an ex post basis
that are currently specified in
§ 217.7(g)(5)(ii) of Regulation Q for
MMDAs.
Under this procedure, institutions
must contact customers who exceed the
transfer limitations on more than an
occasional basis. For customers who
continue to violate the transfer
limitations after being contacted, the
institution must close the account or
take away its transfer and draft
capacities. If an institution continues to
permit recurring excess transfers from a
savings deposit or an MMDA or fails to
maintain procedures to enforce the
transfer limitations, the account may be
determined to authorize such excess
transfers and the institution may be
required to reclassify the account as a
"transaction account.” For example, if
the depositor is eligible to maintain a
NOW account and excess transfers are
made by check, the account may be
required to be reclassified as a NOW
account against which transaction
account reserves will be required to be
held. If the depositor is not eligible to
hold a NOW account, the account may
be required to be reclassified as a
demand deposit on which interest could
not be paid under Regulation Q.
Business Savings Deposits
The proposal removed the separate
definition of savings deposit from
Regulation Q and relied instead on the
Regulation D definition. This change
eliminated the current $150,000
limitation on business savings deposits,
this bringing the treatment of business
savings deposits in line with the
treatment of MMDAs. All comments on
the proposal to remove this limitation
supported the change.
This change also limited business
telephone transfers from a savings
deposit to three per month. If a
depository institution authorized a
business depositor to exceed the
applicable transfer limitation, however,
the institution may be required to
reclassify the account as a "demand
deposit” because businesses are not
9632
Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1966 / Rules and Regulations
authorized to maintain NOW accounts
or ATS accounts. The final rule also
retains this limitation.
Miscellaneous
1. The proposal treated transfers
made by remote (or home) computer or
other telecommunications access device,
other than an ATM, as transfers
counting toward the telephone transfer
limitations. The few comments that
were received on this issue were
divided. H ie Board is amending its
definitions of “transaction account" and
“savings deposit” (including “MMDA”)
to clarify that each such transfer should
be counted toward the monthly
limitations because there is no practical
difference between the customer using
data signals from a site remote from the
premises of the depository institution to
order transfers and using oral
commands over the telephone to order
transfers.
2. A number of comments on the
proposal expressed concern that the
wording of the draft regulation seemed
to indicate that the Board w as seeking
to place limits on withdrawals from
savings deposits and MMDAs at ATMs
where no such limits currently exist. The
Board intended no such change. The
final rule incorporates language
currently found in Regulation Q
delineating permissible withdrawals
from MMDAs at ATMs in the definition
of savings deposits, including the
definition of MMDAs.
3. Under the existing definitions in
Regulation D, the term “transaction
account” includes demand deposits,
NOW accounts, and ATS accounts.
Currently, the term "demand deposit" in
Regulation D includes any deposit that
is not a “time deposit” or a “savings
deposit.” Currently, NOW accounts and
ATS accounts are “savings deposits”
and therefore are not “demand
deposits.” Under the revised definitions,
the term “transaction account”
continues to include “demand deposits,”
NOW accounts, and ATS accounts and
specifically provides that the term
includes any deposit that is not a “time
deposit” or “savings deposit.” The
definition of “demand deposit"
expressly excludes NOW accounts and
ATS accounts. NOW accounts and ATS
accounts enjoy a statutory exemption
from the prohibition against the
payment of interest on demand deposits
and. under the amendments to
Regulation Q being adopted
concurrently with these amendments,
the Regulation D definition of demand
deposit is used in Regulation Q to define
those accounts on which the payment of
interest is prohibited.
4. H ie Board is making technical
amendments to otfier portions of the
regulation to remove obsolete terms and
requirements. These technical
amendments include the following
provisions:
a. Section 204.3(h) of Regulation D
provides for a phase-in of the carryover
of excesses or deficiencies for
depository institutions that report
reservable liabilities weekly. Because
the phase-in is now complete, the Board
is simplifying the section and
eliminating its obsolete phase-in
schedule.
b. Section 204.4 prescribes transitional
adjustments for computing federal
reserve requirements. Reserve phase-in
schedules were established in 1980 for
member, former member, and
nonmember depository institutions.
Because several of these transitional
schedules have been completed, and
because the statute providing that
MMDAs are not subject to the phase-in
expires on March 31,1986, the Board is
revising |204.4. and cross references in
other sections of the regulation, to
remove obsolete provisions and
schedules.
c. Section 204.8(e) provides that the
failure of an international banking
facility to comply with the requirements
of §204.8 may cause it to be subject to
the limitations on the payment of
interest on time deposits contained in
the Board’s Regulation Q. Because these
limitations expire on March 31,1986, the
Board is deleting the cross reference.
5. Finally, nonpersonal MMDA-type
deposits held by depository institutions
(other than Hawaiian nonmember
institutions), will be subject to the
phase-in schedules for federal reserve
requirements rather than to full reserve
requirements beginning with April 1,
1986. The Board has determined that for
weekly reporters full reserves shall
continue to be maintained on these
deposits until the reserve maintenance
period for nontransaction accounts
beginning April 24,1986, which
corresponds to the computation period
commencing March 25,1986. For
quarterly reporters, full reserves shall be
maintained until die reserve
maintenance period commencing April
17,1986, which corresponds to the
quarterly computation period beginning
March 18,1986. Hawaiian institutions
will continue to be governed by the
Board’s December 13,1985 amendment
to Regulation D (50 FR 51508; December
17,1985).
Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5
U.S.C. 601 et aeq.) requires the Board to
consider the Impact of this proposal on
small entities. In this regard, the Board
recognized a potential transition
problem for credit unions and other
entities not now subject to regulations
requiring early withdrawal penalties. It
acted to alleviate this problem by
delaying the effective date of its
requirements for such penalties for such
institutions until January 1,1987. It is the
Board's view that the amendments will
not impose any additional reporting or
recordkeeping requirements. To a large
extent, the amendments retain the
current reserve maintenance and
deposit reporting system. Obsolete
terms and provisions are being removed
from the regulation to simplify it, and
several of the clarifying amendments
ensure more liberal treatment for
savings deposits and MMDAs. This rule
applies to all depository institutions. It
is not anticipated that the amendments
will have a negative effect on the ability
of small depository institutions to attract
deposits.
This rule relieves certain existing
regulatory restrictions on depository
institutions, preserves current policies
regarding the treatment of these
deposits under the regulation, and
replaces statutory and regulatory
provisions expiring March 31,1986.
Accordingly, the Board finds good cause
for implementing this rule on April 1,
1986, which is within thirty days after
the date of publication.
List of Subjects in 12 CFR Part 204
Banks, banking; Federal Reserve
System; Foreign banking.
Pursuant to its authority under section
19(a) of the Federal Reserve Act (12 USC
461(a)), the Board is amending Part 204
as follows:
PART 204—[AMENDED]
1. The authority citation for 12 CFR
Part 204 continues to read:
Authority: Secs. 19, 25, 25(a) of the Federal
Reserve Act (12 U.S.C. 461,601, 611); and sec.
7 of the International Banking Act of 1978 (12
U.S.C. 3105), unless otherwise noted.
2. In S204.2, the introductory text and
paragraphs (b); (c); (d); (e); (f)(l)(i), (ii),
and (v) are revised; and (f)(3) is added
to read:
§ 204.2 Definitions.
For purposes of this part, the
following definitions apply unless
otherwise specified:
* * * * *
(b)(1) “Demand deposit" means a *
deposit that is payable on demand, or a
deposit issued with an original maturity
or required notice period of less than
seven days, or a deposit representing
Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations
funds for which the depository
institution does not reserve the right to
require at least seven days” written
notice of an intended withdrawal.
Demand deposits may be in the form of:
(1) Checking accounts;
(ii) Certified, cashier's and officer’s
checks (including checks issued by the
depository institution in payment of
dividends);
(iii) Traveler’s checks and money
orders that are primary obligations of
the issuing institution;
(iv) Checks or drafts drawn by, or on
behalf of, a non-United States office of a
depository institution on an account
maintained at any of the institution’s
United States offices;
(v) Letters of credit sold for cash or its
equivalent;
(vi) Withheld taxes, withheld
insurance and other withheld funds;
(vii) Time deposits that have matured
or time deposits upon which the
contractually required notice of
withdrawal as given and the notice
period has expired and which have not
been renewed (either by action of the
depositor or automatically under the
terms of the deposit agreement); and
(viii) An obligation to pay, on demand
or within six days, a check (or other
instrument, device, or arrangement for
the transfer of funds) drawn on the
depository institution, where the
account of the institution’s customer
already has been debited.
(2) The term “demand deposit” also
means deposits or accounts on which
the depository institution has reserved
the right to require at least seven days’
written notice prior to withdrawal or
transfer of any funds in the account and
from which the depositor is authorized
to make withdrawals or transfers in
excess of the withdrawal or transfer
limitations specified in § 204.2(d)(2) for
such an account and the account is not a
NOW account, or an ATS account o t
other account that meets the criteria
specified in either § 204.2(b)(3)(ii) or (iii)
below.
(3) “Demand deposit" does not
include:
(i) Any account that is a time deposit
or a savings deposit under this Part;
(ii) Any deposit or account on which
the depository institution has reserved
the right to require at least seven days’
written notice prior to withdrawal or
transfer of any funds in the account and
either—
(A) Is subject to check, draft,
negotiable order of withdrawal, share
draft or similar item, such as an account
authorized by 12 USC 1832(a) (“NOW
Account’') and an MMDA as described
in | 204.2(d)(2)(h), provided that the
depositor is eligible to hold a NOW
account; or
(B) From which the depositor is
authorized to make transfers by
preauthorized transfer or telephonic
(including data transmission) agreement,
order or instruction to another account
or to a third party, provided that the
depositor is eligible to hold a NOW
account;
(iii) Any deposit or account on which
the depository institution has reserved
the right to require at least seven days’
written notice prior to withdrawal or
transfer of any funds in the account and
from which withdrawals may be made
automatically through payment to the
depository institution itself or through
transfer of credit to a demand deposit or
other account in order to cover checks
or drafts drawn upon the institution or
to maintain a specified balance in, or to
make periodic transfers to such other
account, such as accounts authorized by
12 USC 371a (automatic transfer account
or ATS account), provided that the
depositor is eligible to hold an ATS
account;
(iv) Any obligation that is a time
deposit under § 204.2(c)(l)(iv);
(v) Checks or drafts drawn by the
depository institution on the Federal
Reserve or on another depository
institution; or
(vi) IBF time deposits meeting the
requirements of § 204.8(a)(2).
(c)(1) “Time deposit" means:
(i)
A deposit that the depositor does
not have a right and is not permitted to
make withdrawals from within six days
after the date of deposit unless the
deposit is subject to an early
w ithdrawal penalty of a t least seven
days’ simple interest on amounts
withdrawn Within the first six days after
deposit.1 A time deposit from which
1 Accounts existing on March 31,1986, may
satisfy the early withdrawal penalties specified by
this Part by meeting the Depository Institutions
Deregulation Committee's early withdrawal
penalties-in existence on March 31,1986. Accounts
that otherwise meet the requirements for time
deposits but that lack such penalties due to a lack of
a regulatory requirement for such a penalty, as in
the case of Federally-ohartered credit unions, may
continue to be classified as time deposits; however,
the penalty should be included in time deposits
opened, renewed or to which additional deposits
are made on o r after January 1 ,1987.
A time deposit, or a portion thereof, may be paid
before maturity without imposing the early
withdrawal penalties specified by this part:
(a) Where the time deposit is maintained in an
Individual Retirement Account established in
accordance with 28 U.S.C. 408 and is paid within
seven days after establishment of the Individual
Retirement Account pursuant to 28.CFR 1.4086(d)(4), or where it is maintained in a Keogh (H.R.
10) plan; provided that the depositor forfeits an
amount at least equal to the simple interest earned
on theam aunt withdrawn;
(b) Where the depository institution pays all or a
portion of a time deposit representing funds
9633
partial early withdrawals are permitted
must impose aat&&aaaal early
withdrawal penal&es of at least seven
days’ simple interest on amounts
withdrawn witfam six days after each
partial withdrawal, ff such additional
early withdrawal penalties are not
imposed, the account ceases to be a time
deposit. The account may become a
savings deposit if it meets the
requirements for a saving deposit;
otherwise it becomes a transaction
account.2 “Time deposit” includes
funds—
(A) Payable on a specified date not
less than seven days after the date of
deposit;
(B) Payable at the expiration of a
specified time not less than seven days
after the date of deposit;
(C) Payable only upon written notice
that is actually required to be given by
the depositor not less than seven days
prior to withdrawal;
(D) Held in “club” accounts (such as
“Christmas club” accounts and
“vacation club” accounts that are not
maintained as "savings deposits”) that
are deposited under written contracts
providing that no withdrawal shall be
made until a certain number of periodic
deposits have been made during a
period of not less than three months
even though some of the deposits may
be made within six days from the end of
the period; or
(E) Share certificates and certificates
of indebtedness issued by credit unions,
and certificate accounts and notice
accounts issued by savings and loan
associations;
(ii) A "savings deposit;"
contributed to an individual Retirement Account or
a Keogh (H.R. 10) plan established pursuant to 26
U.S.C. 408 or 26 U.S.C. 401 w hen the individual for
whose benefit the account is maintained attains age
59 V o ris disabled (as defined in 28 U.S.C. 72(m)(7))
4
or thereafter;
(c) Where the depository institution pays that
portion of a time deposit on which federal deposit
insurance has been lost as the result of the merger
of two or more federally insured banks in which the
depositor previously maintained separate time
deposits, for a period of one year from the date of
the merger;
(d) Upon the death of any owner of the time
deposit funds;
(e) When the owner of the time deposit is
determined to be legally incom petentby a court or
other administrative body of competent jurisdiction
or
(f) Where a time deposit is withdrawn within ten
days after a specified maturity date even though th<
deposit contract provided for automatic renewal at
the maturity date.
2 A nonpersonal time deposit with a stated
maturity of one and one-half years or more may be
treated as having an original maturity of one and
one-half years or more for reserve requirement
purposes only if it is subfect to the minimum penalty
described in S 204.2(f)(3).
9634
Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations
(iii) An “IBF time deposit” meeting the payment to a third party by means of a
requirements of § 204.8(a)(2); and
preauthorized or automatic transfer, or
(iv) Borrowings, regardless of
telephonic (including data transmission)
maturity, represented by a promissory
agreement, order or instruction,
note, an acknowledgment of advance, or provided that no such withdrawals may
similar obligation described in
be by check, draft or similar order
§ 204.2(a)(l)(vii) that is issued to, or any
(including debit card) drawn by the
bankers’ acceptance (other than the type depositor to third persons. A
described in 12 U.S.C. 372) of the
"preauthorized transfer” includes any
depository institution held by—
arrangement by the depositor institution
(A) Any office located outside the
to pay a third party from the account of
United States of another depository
a depository upon written or oral
institution or Edge or agreement
instruction (including an order received
corporation organized under the laws of
through an automated clearing house
the United States;
(ACH) or any arrangement by a
(B) Any office located outside the
depository institution to pay a third
United States of a foreign bank;
party from the account of the depositor
(C) A foreign national government, or
at a predetermined time or on a fixed
an agency or instrumentality thereof;3
schedule. Such an account is not a
engaged principally in activities which
"transaction account” by virtue of an
are ordinarily performed in the United
arrangement that permits transfers for
States by governmental entities;
the purpose of repaying loans and
(D) An international entity of which
associated expenses at the same
the United States is a member; or
depository institution (as originator or
(E) Any other foreign, international, or servicer) or that permits transfers of
supranational entity specifically
funds from the account to another
designated by the Board.4
account of the same depositor at the
(2) A time deposit may be represented same institution or permits withdrawals
by a transferable or nontransferable, or
(payments directly to the depositor)
a negotiable or nonnegotiable,
from the account when such transfers or
certificate, instrument, passbook, or
w ithdrawals are made by mail,
statement, or by book entry or
messenger, automated teller machine or
otherwise.
in person or when such w ithdrawals are
(d)(1) "Savings deposit” means a
made by telephone (via check mailed to
deposit or account with respect to which the depositor) regardless of the number
the depositor is not required by the
of such transfers or withdrawals.5
deposit contract but may at any time be
(ii) A deposit or account, such as an
required by the depository institution to
account commonly known as a "money
give written notice of an intended
market deposit account” ("MMDA”),
withdrawal not less than seven days
that otherwise meets the requirements
before withdrawal is made, and that is
of § 204.2(d)(1) and from which, under
not payable on a specified date or at the
the terms of the deposit contract or by
expiration of a specified time after the
practice of the depository institution, the
date of deposit. The term “savings
depositor is permitted or authorized to
deposit’ includes a regular share
make no more than six transfers per
account at a credit union and a regular
calendar month or statement cycle (or
account at a savings and loan
similar period) of at least four weeks to
association.
another account (including a transaction
(2) The term “savings deposit” also
means:
5 In order to ensure that no more than the
(i)
A deposit or account that otherwise permitted number of withdrawals or transfers are
meets the requirements of § 204.2(d)(1)
made, for an account to come within the definitions
in § 204.2(d)(2), a depository institution must either
and from which, under the terms of the
(a) prevent withdrawals or transfers of funds in
account agreement, or by practice of the
this account that are in excess of the limits
depository institution, the depositor is
established by § 204.2(d)(2)(i) or (ii), or
permitted or authorized to make no
(b) adopt procedures to monitor those transfers
more than three withdrawals per
on an ex post basis and contact customers who
exceed the limits established by § 204.2(d)(2)(i) or
calendar month, or statement cycle (or
similar period) of at least four weeks, for (ii) on more than an occasional baBis.
For customers who continue to violate those
the purpose of transferring funds to
limits after being contacted by the depository
another account of the depositor at the
institution, the depository institution must either
same institution (including a
close the account and place the funds in another
account that the depositor is eligible to maintain or
“transaction account”) or for making
3 Other than states, provinces, municipalities, ar
other regional or local govemmentalunits or
agencies or instrumentalities thereof.
*■ The designated entities are specified in 12 CFR
217.126.
take away the account's transfer and draft
capacities.
An account that authorizes withdrawals or
transfers in excess of the permitted number in a
transaction account regardless of whether the
authorized number of transactions are actually
made.
account) of the depositor at the same
institution or to a third party by means
of the preauthorized or automatic
transfer (see § 204.2(d)(2)(i)), or
telephonic (including data transmission)
agreement, order or instruction and no
more than three of the six such transfers
may be made by check, draft, debit card
or similar order made by the depositor
and payable to third parties. Such an
account is not a “transaction account”
by virtue of an arrangement that permits
transfers for the purpose of repaying
loans and associated expenses at the
same depository institution (as
originator or servicer) or that permits
transfers of funds from this account to
another account of the same depositor
at the same institution or permits
w ithdrawals (payments directly to the
depositor) from the account w hen such
transfers or w ithdrawals are made by
mail, messenger, automated teller
machine or in person or when such
withdrawals are made by telephone (via
check mailed to the depositor)
regardless of the number of such
transfers or withdrawals.®
(3) A deposit may continue to be
classified as a savings deposit even if
the depository institution exercises its
right to require notice of withdrawal.
(4) “Savings deposit” does not include
funds deposited to the credit of the
depository institution’s own trust
department where the funds involved
are utilized to cover checks or drafts.
Such funds are “transaction accounts.”
(e) "Transaction account” means a
deposit or account from which the
depositor or account holder is permitted
to make transfers or withdrawals by
negotiable or transferable instrument,
payment order of withdrawal, telephone
transfer, or other similar device for the
purpose of making payments or
transfers to third persons or others or
from which the depositor may make
third party payments at an automated
teller machine (“ATM”) or a remote
service unit, or other electronic device,
including by debit card, but the term
does not include savings deposits or
accounts described in § 204.2(d)(2) even
though such accounts permit third party
transfers. “Transaction account”
includes:
(1) Demand deposits;
(2) Deposits or accounts on which the
depository institution has reserved the
right to require at least seven days’
written notice prior to withdrawal or
6 See footnote 5. For accounts described in
§ 204.2(d)(2)(H), the institution at its option may use
on a consistent basis either the date on the check,
draft or similar item or the date the item is paid in
applying the limits on such items.
Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations
transfer of any funds in the account and
that are subject to check, draft,
negotiable order of withdrawal, share
draft, or other similar item, except
accounts described ia § 204.2(d)(2j(ii)
(MMDAs), but including accounts
authorized by 12 USC 1832(a) (’’NOW
accounts”).
(3) Deposits or accounts on which the
depository institution has reserved the
right to require at least seven days’
written notice prior to w ithdrawal or
transfer of any fund£ in the account and
from which withdrawals may be made
automatically through payment to the
depository institution itself or through
transfer or credit to a demand deposit or
other account in order to cover checks
or drafts drawn upon the institution or
to maintain a specified balance in, or to
make periodic transfers to such
accounts, except accounts described in
§ 204.2(d)(2), but including accounts
authorized by 12 U.S.C. 371a (automatic
transfer accounts or ATS accounts).
(4) Deposits or accounts on which the
depository institution has reserved the
right to require at least seven days’
written notice prior to withdrawal or
transfer of any funds in the account and
under the terms of which, or by practice
of the depository institution, the
depositor is permitted or authorized to
make more than three withdrawals per
month or statement cycle (or similar
period) of at least four weeks for
purposes of transferring funds to
another account of tRe depositor at the
same institution (including a
“transaction account”) or for making
payment to a third party by means of
preauthorized transfer, or telephonic
(including data transmission) agreement,
order or instruction, except accounts
described in § 204.2(d)(2). An account
that authorizes more than three such
withdrawals in a calendar month, or
statement cycle (or similar period) of at
least four weeks, is a “transaction
account” whether or not more than three
such transfers are made during such
period. A ‘‘preauthorized transfer”
includes any arrangement by the
depository institution to pay a third
party from the account of a depositor
upon written or oral instruction
(including an order received through an
automated clearing house (ACH)), or
any arrangement by a depository
institution to pay a third party from the
account of the depositor at a
predetermined time or on a fixed
schedule. Such an account is not a
“transaction account” by virtue of an
arrangement that permits transfers for
the purpose of repaying loans and
associated expenses at the same
depository institution (as originator or
service^ or that permits transfers of
funds from this account to another
account of the same depositor at the
same institution o r permits withdrawals
(payments directly to the depositor)
from the account when such transfers or
withdrawals are made by m ail
messenger, automated teller machine or
in person or when such withdrawals are
made by telephone (via check mailed to
the depositor) regardless of the number
of such transfers or withdrawals.
(5) Deposits or accounts maintained in
connection with an arrangement that
permits the depositor to obtain credit
directly or indirectly through the
drawing of a negotiable or
nonnegotiable check, draft, order or
instruction or other similar device
(including telephone or electronic order
or instruction) on the issuing institution
that can be used for the purpose of
making payments'or transfers to third
persons or others or to a deposit account
of the depositor.
(6) All deposits other than time and
savings deposits.
(f)(1) “Nonpersonal time deposit”
means:
(i) A time deposit, including an
MMDA or any other savings deposit,
representing funds in which any
beneficial interest is held by a depositor
which is not a natural person;
(ii) A time deposit, including an
MMDA or any other savings deposit,
that represents funds deposited to the
credit of a depositor that is not a natural
person, other than a deposit to the credit
of a trustee or other fiduciary if the
entire beneficial interest in the deposit
is held by one or more natural persons;
* * * * *
(v) A time deposit represented by a
promissory note, an acknowledgment of
advance, or similar obligation described
in § 204.2(a)(l)(vii) that is issued to, or
any bankers’ acceptance (other than the
type described in 12 U.S.C. 372) of the
depository institution held by:
(A) Any office located outside the
United States of another depository
institution or Edge or agreement
corporation organized under the laws of
the United States;
(B) Any office located outside the
United States of a foreign bank;
(C) A foreign national government, or
an agency or instrumentality thereof,7
engaged principally in activities which
are ordinarily performed in the United
States by governmental entities;
(D) An international entity of which
the United States is a member; or
7 Other than states, provinces, municipalities, or
other regional or local governmental units or
agencies or instrumentalities thereof.
9635
(E) Any otiber foreign, international, or
supranational entity specifically
designated by the Board.®
*
*
*
*
*
(3) Any nonpersonal time deposit with
a stated maturity or notice period of one
and one-half years or more that permits
any early withdrawal must be subject to
a minimum early withdrawal penalty
equal to at least thirty days’ simple
interest on the amount withdrawn for
any withdrawal that occurs more than
six days but within one and one-half
years after the date of deposit. Any such
account not subject to this minimum
early withdrawal penalty will be
regarded as a nonpersonal time deposit
with an original maturity or notice
period of from seven days to less than
one and one-half years from the date of
the deposit.®
*
*
*
*
»
*
§204.2 [Amended]
3. Section 204.2 is amended as follows:
(a) By redesignating the first footnote
1 in paragraph (h)(l)(ii)(A) as footnote
10 .
(b) By redesignating the second
footnote 1 in paragraph (h)(2)(h) as
footnote 11 and revising the footnote to
read, “See footnote 10.”
(c) By redesignating footnote 2 in
paragraph (t)(l) as footnote 12.
4. Section 204.3 is amended by
revising paragraphs (a)(3)(i) and (h) to
read:
§ 204.3 Computation and maintenance.
(a) * * *
(3) * * * (i) In determining the reserve
requirements of a depository iristitution,
the exemption provided for in section
204.9(a) shall apply in the following
order of priorities:
(A) First, to net transaction accounts
that are first authorized by federal law
in any state after April 1,1980;
(B) Second, to other net transaction
accounts: and
(C) Third, to nonpersonal time
deposits (including MMDAs and other
savings deposits) and Eurocurrency
liabilities starting with those with the
highest reserve ratio under § 204.2(a)
and then to succeeding lower reserve
ratios.
*
*
*
*
*
(h) Carryover o f Excesses or
Deficiencies. Any excess or deficiency
8 The designated entities are specified in 12 CFR
217.126.
9 See Footnote 1 for treatment of accounts
existing on March 31,1966 and for exceptions to the
imposition of the early withdrawal penalties
imposed by this Part. The penalty required fcy (his
§ 204.2(f)(3) and that required by § 204.2(c)(1) need
not be aggregated.
Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations
9636
in a required reserve balance for any
maintenance period that does not
exceed the greater of two percent of the
institution’s required reserves (including
required clearing balances and net of
the required clearing balance penalty
free band where applicable) or $25,000,
shall be carried forward to the next
maintenance period. Any carryover not
offset during the next period may not be
carried forward to subsequent periods.
*
*
*
*
*
specifically designated by the Board; 16
or
c. By amending paragraph (e) by
removing the phrase “and to interest
payment limitations that may be
applicable under Regulation Q (12 CFR
Part 217) on its IBF time deposits,”.
By order of the Board of Governors of the
Federal Reserve System, March 17,1986.
of “deposit” now appear in Regulation
D.
This final rule does not address
advertising of deposits by member
banks (§ 217.6 of Regulation Q) which
the Board also published for comment
(51 FR 1379) and which will be adopted
at a later date.
EFFECTIVE DATE: April 1,1986.
W illiam W . W iles,
FOR FURTHER INFORMATION CONTACT:
Secretary of the Board.
[FR Doc. 86-6143 Filed 3-19-86; 8:45 am]
§204.4 [Amended]
5. Section 204.4 is amended as follows:
a. By amending the last sentence of
paragraph (a) by removing the language
after “1980” and replacing it with a
period.
b. By removing paragraphs (b) and (c).
c. By redesignating paragraph (d) as
paragraph (b) and removing the phrase
“or (c), as applicable,”.
d. By redesignating paragraph (e) as
paragraph (c) and in new paragraph (c)
(2)(ii) replacing "eight” with
“seventeen”.
e. By redesignating paragraph (f) as
paragraph (d) and by removing from
new paragraph (d)(2) the language”,
including deposits or accounts issued
pursuant to 12 CFR 1204.122,”.
f. By redesignating paragraph (g) a3
paragraph (e) and changing the
references in paragraphs (e)(1) and (2)
from “(a) through (f)” to “(a) through
(d)” and the reference in paragraph
(e)(2)(iii) from “(g)” to “(e)”.
§ 204.8 [Amended]
6. Section 204.8 is amended as follows:
a. revising paragraph (a)(2)(i)(B)(5) to
read: A foreign national government, or
an agency or instrumentality thereof,13
engaged principally in activities which
are ordinarily performed in the United
States by governmental entities; an
international entity of which the United
States is a member; or any other foreign
international or supranational entity
specifically designated by the Board;14
or
b. By revising paragraph (a)(3)(v) to
read: A foreign national government, or
an agency or instrumentality thereof,15
engaged principally in activities which
are ordinarily performed in the United
States by governmental entities; an
international entity of which the United
States is a member; Or any other foreign
international or supranational entity
13 Other than states, provinces, municipalities, or
other regional or local governmental units or
agencies or instrumentalities thereof.
14 The designated entities are specified in 12 CFR
217.126.
19 See footnote 13.
BILLING CODE 6210-01-M
12 CFR Part 217
[Reg. Q; Docket No. R-0566]
Interest on Deposits; Definition of
Deposit and Technical Amendments
Board of Governors of the
Federal Reserve System.
a c t io n : Final rule.
AGENCY:
SUMMARY: Pursuant to its authority
under section 19 of the Federal Reserve
Act, as amended, the Board is adopting
a final rule amending 12 CFR Part 217
(Regulation Q—Interest on Deposits).
Concurrently, the Board is amending 12
CFR Part 204 (Regulation D—Reserve
Requirements of Depository
Institutions). The amendments are being
adopted after consideration of public
comment on proposed amendments to
Regulation Q (51 FR 31) and Regulation
D (51 FR 27).
The amendments are due to the
expiration on March 31,1986, of the
statutory authority to set interest rate
ceilings on time and savings deposits
and to prescribe rules regarding early
w ithdrawals from time deposits. All
regulations of the Board issued under
this authority and all regulations of the
Depository Institutions Deregulation
Committee (“DIDC”) also expire on that
date.
These amendments rely on the
definitions of “deposit” and “demand
deposit” in the Board’s Regulation D—
Reserve Requirements of Depository
Institutions (12 CFR Part 204) for the
purposes of Regulation Q. The
amendments eliminate the sections of
Regulation Q that govern withdrawals
from time deposits and savings deposits,
set early w ithdrawal penalties, and
establish account characteristics and
interest rate ceilings. Rules regarding
early withdrawal penalties for reserve
requirement purposes (rather than for
enforcement of interest rate limitations)
and definitions of the various categories
16 See footnote 14.
John Harry Jorgenson, Senior Attorney
(202/452-3778), or Patrick J. McDivitt,
Attorney, (202/452-3818), Legal Division,
or Ernestine Hill or Dorothea Thompson,
Telecommunication Device for the Deaf
(TDD) (202/452-3544), Board of
Governors of the Federal Reserve
System, Washington, DC 20551.
SUPPLEMENTARY INFORMATION: Section
19(a) of the Federal Reserve Act, 12
U.S.C. 461(a), gives the Board the
authority to issue rules defining terms
used in section 19 in order to prevent
evasions of that section. Section 19(i) of
that Act (12 U.S.C. 371a) prohibits the
payment of interest on a demand
deposit by a member bank, and section
19(j) of that Act (12 U.S.C. 371b) gives
the Board authority to issue rules
governing the payment and advertising
of interest on deposits.1 Pursuant to this
authority, the Board promulgated its
current Regulation Q which regulates
the payment of interest on deposits.
The Board’s authority under section
13(j) to issue rules governing the
payment of interest on deposits, other
than demand deposits, and the
comparable authority of the Federal
Deposit Insurance Corporation and the
Federal Home Loan Bank Board expire
with the expiration of the Depository
Institutions Deregulation Act of 1980 at
the end of March 31,1986.
The expiration of the rules of the
DIDC and of the authorities transferred
to the DIDC at the end of March 31,
1986, will not affect section 19(i) of the
Federal Reserve Act which prohibits a
member bank from paying interest on a
demand deposit. Nor will these
expirations affect the authority of
member banks to offer accounts that
permit automatic transfers to checking
accounts (“ATS accounts”) as
authorized by the last sentence of
section 19(i) of the Federal Reserve Act
(12 U.S.C. 371a) or to offer accounts
subject to negotiable orders of
1 The current advertising rule is codified in
Regulation Q at 12 CFR 217.6—Advertising of
Interest on Deposits. In a separate rulemaking
proceeding, the Board requested comment on
proposed revisions to its rules on member bank
advertising of interest on deposits (51 FR 1379). The
comment period for the separate rulemaking on
advertising closed on March 6,1986.
Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations
withdrawal (“NOW accounts”) as
authorized by section 2(a) of Pub. L. 93100 (12 U.S.C. 1832(a)).
The amendments being adopted by
the Board revise §§ 217.1-217.5 and
217.7 of Regulation Q by removing the
rules relating to penalties for early
withdrawals from time deposits (section
217.4) and the interest rate ceilings and
account characteristics for time and
savings deposits (primarily § 217.7).2
In order to prevent savings deposits
from being used to evade the prohibition
against the payment of interest on
“demand deposits,” the Board in the
past prescribed rules regarding
withdrawals from savings deposits. The
Board is retaining the substance of these
provisions but has incorporated them
into Regulation D. Consequently, the
rules governing withdrawals from
savings deposits, currently contained in
§ 217.5, are unnecessary and are being
rescinded.
The revised definition of “demand
deposit” in Regulation D, which is being
incorporated by reference in Regulation
Q. defines the accounts subject to the
prohibition against the payment of
interest on demand deposits. Under the
revised definition, the term “demand
deposit” excludes NOW accounts and
ATS accounts as well as ordinary
savings deposits and money market
deposit accounts (“MMDAs”) if the
applicable transfer limitations are
adhered to. If the depositor is authorized
to exceed the transfer limitations
applicable to savings deposits and
MMDAs, however, such accounts would
be “transaction accounts” for the
purpose of Regulation D but would not
be “demand deposits” for the interest
payment prohibition purposes of
Regulation Q if the depositor is eligible
to hold another type of account, such as
a NOW account or an ATS account, that
would permit the particular excess
transfers. For other depositors, savings
deposits and MMDAs authorized to
exceed the withdrawal or transfer
limitations would be considered to be
demand deposits on which interest
could not be paid.
The definition of “savings deposit” is
also deleted from Regulation Q, and an
amended definition of that term is
contained in Regulation D. The
Regulation D definition also removes the
$150,000 limitation on business savings
accounts but treats a business telephone
transfer account authorizing more than
2 Section 217.4 of this final rule retains the current
requirement that a member bank disclose to the
customer the e f f e c t a n y early withdrawal penalty.
That section also retains the current requirement
that interest cannot be paid after a maturity date
unless the contrar* provides otherwise.
three telephone transfers per month as
“demand deposit.”
The Board’s rules regarding the
payment of interest are also set forth in
various Board interpretations and policy
statements and in staff opinions and
rulings. These amendments render many
of these interpretations, policy
statements, and staff opinions
unnecessary, and the Board will be
revising these positions accordingly.
Unless a contrary intent is evidenced in
the revised Regulations D and Q, until
the technical revisions are promulgated,
member banks may continue to rely
upon existing interpretations and
policies concerning the exceptions from
early w ithdrawal penalties, the use of
premiums, the payment of interest after
maturity of a deposit, and the grace
period for withdrawals without penalty
from an automatically renewable time
deposit after a rollover or maturity date.
Further, certain disclosure requirements
currently found in the related or revised
sections of the current Regulation Q are
retained in a new § 217.4.
Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) requires the Board to
consider the impact of this proposal on
small entities. In this regard, it is the
Board's view that the amendments will
not impose any additional reporting or
recordkeeping requirements. The
purpose of this rule is to simplify
Regulation Q and to remove obsolete
terms and conditions that affect the
payment of interest on deposits. The
rule applies to banks that are members
of the Federal Reserve System. It is
anticipated that this rule will have little
or no adverse effect on the ability of
small depository institutions to attract
deposits.
This rule removes existing regulatory
provisions, the authority for which
expires on March 31,1986 and amends
provisions to preserve current
requirements in light of the expiration of
other requirements. Consequently, the
Board finds good cause for
implementing this rule on April 1,1986,
which is within thirty days after the date
of publication.
List of Subjects in 12 CFR Part 217
Banks, banking, Federal Reserve
System, Interest on deposits.
Pursuant to its authority under section
19 of the Federal Reserve Act (12 U.S.C.
461 et seq., 371a and 371b), the Board is
amending Part 217 as follows:
PART 2 1 7 -[AMENDED]
1. The Authority citation for 12 CFR
Part 217 is revised to read.
9637
Authority: 12 U.S.C. 248, 371. 371a, 371b,
461,1828, and 3105, unless otherwise noted.
§§ 217.3,217.4,217.5, and 217.7
[Removed]
2. Current §§ 217.3, 217.4, 217.5, and
217.7 of this Part are removed.
3. Current § § 217.0 through 217.2 are
redesignated as §§ 217.1, through 217.3
and are revised to read:
§ 217.1 Authority, purpose, and scope.
(a) Authority. This regulation is issued
under the authority of section 19 of the
Federal Reserve Act (12 U.S.C. 371, 371a,
371b, 461), section 7 of the International
Banking Act of 1978 (12 U.S.C. 3105), and
section 11 of the Federal Reserve Act (12
U.S.C. 248), unless otherwise noted.
(b) Purpose. This regulation prohibits
the payment of interest on demand
deposits by member banks and other
depository institutions within the scope
of this regulation and sets forth
requirements concerning the
advertisement of interest on deposits by
member banks and these other
institutions.
(c) Scope. (1) This regulation applies
to state chartered banks that are
members of the Federal Reserve under
section 9 of the Federal Reserve Act (12
U.S.C. 321, et seq.) and to all national
banks. The regulation also applies to
any Federal branch or agency of a
foreign bank and to a State uninsured
branch or agency of a foreign bank in
the same manner and to the same extent
as if the branch or agency were a
member bank, except as may be
otherwise provided by the Board, if:
(1) Its parent foreign bank has total
worldwide consolidated bank assets in
excess of $1 billion;
(ii) Its parent foreign bank is
controlled by a foreign company which
owns or controls foreign banks that in
the aggregate have total worldwide
consolidated bank assets in excess of $1
billion; or
(iii) Its parent foreign bank is
controlled by a group of foreign
companies that own or control foreign
banks that in the aggregate have total
worldwide consolidated bank assets in
excess of $1 billion.
(2) For deposit^ held by a member
bank or a foreign bank, this regulation
does not apply to “any deposit that is
payable only at an office located outside
of the United States” [i.e., the States of
the United States and the District of
Columbia) as defined in § 204.2(t) of the
Board's Regulation D— Reserve
Requirements of Depository Institutions
(12 CFR Part 20.4).
9638
§217.2
Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations
Definitions.
For purposes of this part, the
following definitions apply unless
otherwise specified;
(a) "Demand deposit” means any
deposit that is considered to be a
“demand deposit” under § 204.2(b) of
the Board’s Regulation D—
-Reserve
Requirements of Depository Institutions
(12 CFR Part 204).
(b) “Deposit” means any liability of a
member bank that is considered to be a
“deposit” under § 204.2(a) of the Board’s
Regulation D—ReserveRequirements of
Depository Institutions (12 CFR Part
204).
(c) “Foreign bank” means any bank
that is considered to be a “foreign bank”
under § 204.2(o) of the Board’s
Regulation D—Reserve Requirements of
Depository Institutions (12 CFR Part
204).
(d) “Interest" means any payment to
or for the account of any depositor as
compensation for the use of funds
constituting a deposit. A member bank’s
absorption of expenses incident to
providing a normal banking function or
its forbearance from charging a fee in
connection with such a service is not
considered a payment of interest.
§ 217.3 Interest on demand deposits.
No member bank of the Federal
Reserve System shall, directly or
indirectly, by any device whatsoever,
pay any interest on any demand
deposit.1
4. A new § 217.4 is added as follows:
§ 217.4 Miscellaneous.
(a) Early withdrawal penalty. At the
time a depositor enters into a time
deposit contract with a member bank,
the bank shall provide a written
statement of the effect of any early
withdrawal penalty which shall (1) state
clearly that the customer has contracted
to keep the funds on deposit for the
stated maturity, and (2) describe fully
and clearly how such penalty provisions
apply to time deposits in such bank, in
the event the bank, notwithstanding the
contract provisions, permits payment
before maturity. Such statement shall be
expressly called to the attention of the
customer.
1 A member bank may continue to pay interest on
a time deposit for not more than ten calendar days;
(1) Where the member bank has provided in the
time deposit contract that, if the deposit or any
portion thereof is withdrawn not jnore than ten
calendar days after a maturity date (one business
day for “IBF time deposits” a* defined in
S 2 0 4 .B(aH2 ) cff Regulation D), interest will continue
to be paid for such period; O (2) for a period
ir
between a maturity date and the date of renewal of
the-deposit, provided that such certificate is
renewed within ten calendar days after maturity.
(b) Payment of interest. On each
automatically renewable certificate,
passbook, or other document
representing a time deposit, the bank
shall have printed or stamped a
conspicuous statement indicating that
the contract will be renewed
automatically upon maturity and
indicating the terms of such renewal.
By order of the Board of Governors of the
Federal Reserve System, March 17,1986.
W illiam W . W iles,
Secretary of the Board.
(FR Doc. 86-6142 Filed 3-19-86; 8:45 am]
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