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FEDERAL RESERVE BANK
OF DALLAS

November 25, 1933

PAYMENT OF INTEREST ON DEPOSITS OF POSTAL SAYINGS FUNDS

To the Member Bank Addressed:

For your information, we quote below ruling made by the Federal Reserve Board under date
of November 18, 1933, relative to the payment of interest by member banks on deposits of postal
savings funds:
“ The Federal Reserve Board has received a number of inquiries with respect to the question
whether deposits of postal savings funds, subject to the provisions of the regulations of the Postal
Savings System governing the deposit of such funds in banks, are deposits on which interest may
be paid by member banks under the provisions of Section 19 of the Federal Reserve Act.
“ By order of the Postmaster General, dated August 30, 1933, paragraph 1 of Section 15 of the
regulations of the Postal Savings System on this subject was amended so as to read as follows:
“ ‘All funds deposited prior to July 1, 1933, in depository banks of the Postal Savings
System shall be treated as time deposits, to remain on deposit in such banks for one calen­
dar month from July 1, 1933. All funds deposited after July 1,1933, in such banks shall like­
wise be treated as time deposits, for the period including the calendar month next follow­
ing the date of deposit. At the expiration of such periods and in the event that withdrawal
is not made of the deposit at the end of such calendar periods by the Board of Trustees
of the Postal Savings System, then such funds shall be considered as having been redepos­
ited for the succeeding calendar month; and likewise redeposited for each and every cal­
endar month thereafter until withdrawal is made. All postal-savings funds held by any
qualified depository bank in excess of the security value of its collateral shall be promptly
disposed of in accordance with the provision of Section 17 of the Banking Regulations.’
“ The Federal Reserve Board understands that, under the provisions of the regulations amended
as above quoted, the withdrawal of postal savings funds from banks was authorized only on the first
day of any calendar month and funds not withdrawn on such day were considered as having been
redeposited for another full calendar month; and also that no such funds were authorized to be
withdrawn except on the first day of any calendar month even though no interest was pain on such
deposits. It is the view of the Federal Reserve Board that deposits withdrawable only under these
conditions may properly be classified, during the period in which the regulations in the form as
amended August 30, 1933, were in effect, as time deposits on which interest may be paid in accord­
ance with the provisions of the Board’s Regulation Q.

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

“ It is understood that the paragraph of the regulations of the Postal Savings System above
quoted was further amended by order of the Postmaster General No. 4420, under date of October
24, 1933, so as to read as follows:
“ ‘In compliance with rulings of the Federal Reserve Board concerning time deposits,
and to secure uniformity of procedure among all depository banks of the Postal Savings
System, the calendar year is divided into specific periods of not less than thirty days
each, with the beginning and termination dates of such periods shown, as follows:
From
Jan. 1
Feb. 1
Mar. 3
April 2
May 2
June 1

To
Jan. 31
Mar. 2
April 1
May 1
May 31
June 30

No. of Days
31
*30 or 31
30
30
30
30

From
July 1
Aug. 1
Sept. 1
Oct. 1
Nov. 1
Dec. 1

To
July
Aug.
Sept.
Oct.
Nov.
Dec.

31
31
30
31
30
31

No. of Days
31
31
30
31
30
31

*30 or 31 days, according to whether or not year is Leap Year.

All funds deposited prior to July 1,1933, in depository banks of the Postal Savings System
shall be treated as time deposits, to remain on deposit in such banks for the specified
period beginning July 1, 1933. All funds deposited after July 1, 1933, in such banks shall
likewise be treated as time deposits from the date of the deposit to and including the date
of termination of the specific period next following the period in which the deposit is
made, unless such deposit shall have been made on the first day of a period—-in other
words, the initial time period for deposits made subsequent to July 1, 1933, will be the
period from and including the date of the deposit to the expiration of the next succeeding
specified period, unless such deposit shall have been made on the first day of a period in
which case the initial time period will be the period from and including the date of the de­
posit to and including the date of termination of the period in which the deposit is made.
At the expiration of such periods and in the event that withdrawal is not made of the
deposit by the Board of Trustees of the Postal Savings System, then such funds shall be
considered as having been redeposited for the succeeding specified period; and likewise
redeposited for each and every specified period until withdrawal is made. In accordance
with the foregoing, postal-savings funds on deposit in qualified banks, the fixed time period
having expired, may be withdrawn by the Board of Trustees of the Postal Savings Sys­
tem or relinquished voluntarily by depository banks only on the first day of a succeeding
specified period: Provided, that all unsecured postal-savings funds held by any qualified
bank to the credit of the Board of Trustees shall be subject to the provisions of Section 17
of these regulations.’
“ It is the view of the Federal Reserve Board, after careful consideration of the regulations
of the Postal Savings System as amended on October 24, 1933, that deposits withdrawable only at
the times and under the conditions stated in the regulations as thus amended may be classified as
time deposits on which interest may be paid in accordance with the provisions of the Board’s Regu­
lation Q, except as noted in the last paragraph hereof.
“ The Federal Reserve Board advised all Federal reserve banks in a telegram dated June 21,
1933 (Trans. No. 1826) that, since the provisions regarding payment of interest on deposits are
incorporated in Section 19 of the Federal Reserve Act, definitions contained in Section II of the
Board’s Regulation D should be considered in determining what are time deposits pending the issu­
ance of further regulations relating to the payment of interest on deposits and that member banks
might continue to pay interest on time deposits in accordance with their usual practice or existing
bona fide contracts until the Board should issue regulations on the subject; and it is to be noted
that, under the provisions of Section II of Regulation D, deposits of postal savings funds in banks
under the terms of the Act of June 25, 1910, as amended constitute time deposits. The Federal
Reserve Board’s Regulation Q relating to the payment of interest on deposits was adopted and

made effective on August 29, 1933; and, as above stated, the regulations of the Postal Savings Sys­
tem, governing the deposits of postal savings funds in banks, were amended by order of the Post­
master General dated August 30, 1933, so that deposits subject to the conditions thereof were time
deposits. In the circumstances, the Federal Reserve Board offers no objection to the payment by
member banks of interest on postal savings funds accruing during the period from June 16, 1933,
until August 30, 1933; except that no member bank, which during such period may have lawfully
terminated its agreement with the Postal Savings System to pay interest on deposits of postal
savings funds payable on demand, may pay interest on such deposits payable on demand which
accrued after the effective date of the termination of such agreement.
“ It is to be observed that the regulations of the Postal Savings System, as amended on October
24, 1933, contain the provision that all unsecured postal savings funds held by any qualified bank
to the credit of the Board of Trustees shall be subject to the provisions of Section 17 of the regula­
tions, which provides that an amount in a qualified bank in excess of the maximum balance author­
ized for such bank shall at once be returned in accordance with the procedure prescribed therein to
the Board of Trustees. A provision similar in effect was included in the regulations as amended on
August 30, 1933. It would appear that an amount in excess of the maximum balance authorized for
any qualified bank is not subject to the conditions with respect to withdrawal to which other de­
posits of postal savings funds are subject under the amended regulations. Such excess amounts,
therefore, do not conform to the requirements with respect to time deposits and must be consid­
ered deposits payable on demand upon which no interest may lawfully be paid by a member bank.”
Yours very truly,

r—
Federal Reserve Agent


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102