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F ederal R

eserve

Bank

OF DALLAS
WILLIAM H. WALLACE
F IR S T V ICE P R E S ID E N T

DALLAS, TEXAS 75222

January 29, 1986
C ircu la r 86-10

TO:

All deposito ry i n s t i t u t i o n s in the
Eleventh Federal Reserve D i s t r i c t
SUBJECT

Proposed
amendments
Depository I n s t i t u t i o n s )

to

Regulation

D (Reserve

Requirements

of

DETAILS
The Board of Governors of the Federal Reserve System has issu ed, for
public comment, proposed amendments to Regulation D, Reserve Requirements of
Depository I n s t i t u t i o n s .
The proposed amendments redefin e the terms
" t r a n s a c t i o n account,"
"savings d e p o s i t , " and "time d e p o s i t. " The Board a lso proposes to make oth er
te ch n ical amendments to Regulation D.
Comments on the proposed r u l e must be received no l a t e r than
February 18, 1986.
The f in a l r u l e will be e f f e c t i v e a t the end o f March 31,
1986.
ATTACHM
ENTS
The Board's press r e l e a s e and the r e l a t e d
are a tta ch ed.

Federal Register

document

M RE INFORM
O
ATION
For f u r t h e r information regarding Regulation D, please co n tact Robert
Feil a t (214) 651-6690 or John Rogers a t (214) 651-6228.
Sin cerely yours

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)

FEDERAL RESERVE press release

For Immediate r e l e a s e

December 26, 1985

The Federal Reserve Board today issued f o r comment proposed amendments
to 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 o preserve money market deposit accounts (M DAs) and t o maintain
M
p e n a l t i e s f o r e a r l y withdrawal of time d e p o s i ts , in c e r t a i n circumstances, fo r
monetary policy purposes.
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 the orderly phase-out and u ltim ate e lim in atio n
of i n t e r e s t r a t e c e i l i n g s under t h e d i r e c t i o n of an interagency committee, th e
Depository I n s t i t u t i o n s Deregulation Committee (DIDC).

Under th e present law,

the DIDC term in ates 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 t h o r i t y expires March 31,
1986.
In 1982 th e Garn-St Germain Depository I n s t i t u t i o n s
o rig in a l

Act amended th e

l e g i s l a t i o n by d i r e c t i n g the DIDC t o au th orize a new

deposit account

d i r e c t l y equ iv alen t t o and competitive with money market mutual funds.

Depository

i n s t i t u t i o n s were permitted t o o f f e r th e r e s u l t i n g money market deposit account
beginning December 14, 1982.
In order t o preserve the cu rre n t treatm ent of M D s f o r reserve r e q u i r e ­
MA
ment purposes, t h e Board proposes t o r e t a i n in i t s d e f i n i t i o n of savings deposit
the f e a tu re s of th e M D .
MA

Thus, th e Board w ill defin e M D s as a kind of savings
MA

account allowing up t o s i x t r a n s f e r s per month by telephone i n s t r u c t i o n , p re ­
authorized t r a n s f e r , or o th e r order by th e customer, no more than t h r e e of which
may be by check or d r a f t .

In a d d i t i o n , t h e Board proposes t o e l i m in a te th e

c u r re n t $150,000 l i m i t a t i o n on business savings accounts, brin ging t h e treatm ent
of such accounts in l i n e with M DAs.
M
When t h e l i m i t a t i o n s on r a t e s of i n t e r e s t t h a t may be paid on d e p osits
e x p i r e , t h e e x p l i c i t a u t h o r i t y f o r a mandatory e a r ly withdrawal penalty a l s o e x p i r e s .
The Board 1s proposing t o redefin e time d ep o s its t o in co rp o rate an e a r ly withdrawal
penalty in order t o d i s t i n g u i s h t r a n s a c t i o n accounts from time dep o s its f o r reserve
requirement purposes.

This action w ill a ls o r e t a i n t h e cu rre n t one and one-half

year m aturity break on nonpersonal time d e p o s i t s .
C u r r e n t l y , sh o rt-term nonpersonal time d ep o s its (those with m a t u r i t i e s
of 7 days t o l e s s than 1-1/2 y e a r s ) are su b je c t t o a 3 percent reserve requirement.
Nonpersonal time dep osits with m a t u r i ti e s of 1-1/2 y ears or more are su b je c t t o a
zero percent reserv e requirement.

Under th e proposal, a d eposit q u a l i f i e s as a

time deposit only i f customers cannot make withdrawals f o r t h e f i r s t s i x days or i f
customers are penalized seven days' i n t e r e s t f o r making withdrawals during t h a t
p erio d .

Because personal time depo sits are not su b je c t t o r e se r v e s, a personal time

deposit need have a withdrawal penalty only t o d i s t i n g u i s h i t from a t r a n s a c t i o n
account.
Business deposits reg ard less of t h e i r o r i g in a l matu rity must be
nonwithdrawable within s i x days or be su b je ct t o t h e seven days' of I n t e r e s t
penalty t o q u a l i f y as nonpersonal time d e p o s i ts , r a t h e r than t r a n s a c t i o n
accounts.

Thus, they would be su b je c t t o th e 3 percent reserve requirement

on nonpersonal time d e p o s i ts .

In order t o have no reserve requirement, a

nonpersonal time deposit must have an o r ig in a l matu rity of a t l e a s t 18 months,
be su b ject t o th e seven days' of i n t e r e s t penalty (or be nonwithdrawable), and
e i t h e r be su b je ct t o a penalty a t l e a s t equal t o one month's simple I n t e r e s t
on the amount withdrawn a f t e r the s i x t h day but w ithin t h e f i r s t 18 months
of the deposit or not be withdrawable within t h i s p erio d .

-3-

The Depository I n s t i t u t i o n s Deregulation Committee, as p a rt of i t s
mandate t o d ereg u late th e payment of i n t e r e s t on dep o sits by r e g u l a t i o n , has
provided t h a t on January 1, 1986, th e minimum balance requirements 'on c e i l i n g - f r e e
neg otiab le order of withdrawal (NOW accounts or Super NOW M DAs, and 7- t o 31)
s, M
day time d e p o s its w ill be elim in a te d .

The minimum balance now i s $1,000.

The

regulatory p r o h i b it i o n t h a t prevents I n s t i t u t i o n s from guaranteeing a r a t e on a
c e i l i n g - f r e e N W account f o r longer than 30 days i s also elim in a te d .
O

Institutions

are reminded t h a t a l l other account c h a r a c t e r i s t i c s and l i m i t a t i o n s remain in
place u n t i l March 31, 1986.
A d d i t i o n a l l y , t h e Federal Reserve Board has issued an amendment t o
Regulation D concerning reserve requirements on M D s held by Hawaiian nonmember
MA
depository I n s t i t u t i o n s .
The Board's n o tic es are a tta c h e d .
-

Attachment

0-

27

Proposed Rules

Federal Register
Vol. 51, No. 1
Thursday, January 2. 1986

penalties and the specific legislative
mandate prescribing the terms and
characteristics of Money Market Deposit
Accounts. The proposed amendments
redefine the terms "transaction
account,” “savings deposit,” and “time
deposit.” The Board also proposes to
make other technical amendments to
Regulation D.
d a t e s : Comments on the proposed rule
must be received no later than February
18,1986. The final rule will be effective
at the end of March 31,1986.
ADDRESS: Interested parties are invited
to submit written data, views, or
arguments concerning the proposal to
William W. Wiles, Secretary, Board of
Governors of the Federal Reserve
System, 20th and C Streets, NW.,
Washington, DC 20551, or such
comments may be delivered to Room B2223 between 8:45 a.m. and 5:15 p.m. All
comments should refer to Docket No.
0565. Comments may be inspected in
Room B-1122 between 8:45 a.m. and 5:15
p.m. on business days, except as
provided in §261.6(a) of the Board’s
Rules Regarding Availability of
Information (12 CFR 261.6(a)).
FOR FURTHER INFORMATION CONTACT:

FEDERAL RESERVE SYSTEM
12 CFR Part 204
[Reg. D; Docket No. R-05651

Definition of Deposits and Technical
Amendments
Board of Governors of the
Federal Reserve System.
ACTION: Proposed rules.

AGENCY:

Pursuant to its authority
under section 19 of the Federal Reserve
Act, as amended, the Board requests
comment on proposed amendments to 12
CFR Part 204 (Regulation D—Reserve
Requirements of Depository
Institutions}. Tne amendments arise
from the expiration of limitations on the
payment of interest on deposits, other
than demand deposits, under the
Depository Institutions Deregulation Act
of 1980 (Title II of Pub. L. 96-221) on
March 31,1986. On that date, legislative
and regulatory authority for setting
limitations on the payment of interest on
deposits, other than demand deposits,
expires along with express authority for
setting mandatory early withdrawal

su m m ary :

John Harry Jorgenson, Senior Attorney
(202/452-3778) or Patrick McDivitt,
Attorney (202/452-3818), Legal Division,
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), as amended by the
Monetary Control Act of 1980 (Title I of
Pub. L. 96-221) 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.
Regulation D incorporates definitions of
deposit categories that have been used
to regulate the payment of interest on
deposits under the Board’s Regulation
Q—Interest on Deposits (12 CFR Part
217). One such category is the money
market deposit account ("MMDA”).1
1 Similar categories have been established under
comparable authority of the Federal Deposit
Insurance Corporation, the Federal Home Loan
Bank Board, and the National Credit Union
Administration.

28

Federal Register / Vol. 51, No. 1 / Thursday, January 2, 1986 / Proposed Rules

The Garn-St Germain Depository
Institutions Act of 1982 (Pub. L. 97-320)
mandated the creation of the MMDA
which permitted depositors limited
authority to withdraw funds by draft
from the account. Senate Joint
Resolution 97-271 (Pub. L. 97-457) also
provided that the MMDA would not be
considered as a transaction account for
purposes of Regulation D. Consequently,
Regulation D excluded the MMDA from
the definitions of “transaction account”
and “demand deposit” even though it
was subject to drafts.
On March 31,1986, the statutory
authority mandating the MMDA and
excluding it from the definition of
“transaction account” and the
regulations of the DIDC implementing
the MMDA expire along with the
regulatory limitations on the payment of
interest on deposits.2 In order to
preserve the current treatment of
MMDAs for reserve requirement
purposes, the Board proposes to amend
its definition of “savings deposit” to
include explicitly the MMDA
characteristics as a subcategory in that
definition in lieu of the current reference
to the DIDC’s rule authorizing the
MMDA. Specifically, the Board proposes
that transaction reserve requirements
not be applied to MMDA-type savings
deposits that conform to current
regulatory limitations on withdrawals
and transfers. Thus, the Board proposes
that the definition describe MMDAs as a
kind of savings account allowing up to
six transfers per month by
preauthorized, automatic, telephonic or
other data transmission agreement,
order, or instruction and no more than
three of the six such transfers may be by
check, draft or other similar order. In
addition, the Board proposes to
eliminate the current $150,000 limitation
on business savings accounts, thus
bringing the treatment of such accounts
in line with the treatment of MMDAs.
When the limitations on rates of
interest that may be paid on deposits
expire, the express authority for a
mandatory early withdrawal penalty
also expires. This penalty has been used
by the Board to define deposit
categories for the purposes of Regulation
D as well as to regulate the payment of
interest on deposits under its Regulation
Q. In order to preserve the distinction
between time deposits and transaction
accounts for reserve requirement
purposes and to enforce the current one
and one-half year maturity break on
2 Statutory limitations, such as the prohibitions
against the payment of interest on demand deposits
and the eligibility requirements on NOW accounts
and ATS accounts, are not affected by the
expiration.

or draft or other similar order drawn by
the depositor.
The Board believes that the
regulations that created the MMDA and
the statutory provisions excluding
MMDAs from1 definition of
the
“transaction account” will expire on
March 31,1986, at the same time
Changes to the Definitions of Certain
authority governing the limitations of
Types of Deposits
the rates of interest paid on deposits
1. Currently, the Board’s Regulation D expires. The Board proposes to retain in
imposes, subject to certain adjustments
its Regulation D its current treatment of
and deductions, a 12 percent reserve
the MMDA. Such amounts would
requirement on transaction accounts
continue to be excluded from the
and a 3 percent reserve requirement on
definition of “transaction account"
nonpersonal savings deposits and on
provided they meet the regulatory
nonpersonal time deposits with original
limitations on withdrawals which
maturities or notice periods or less than
currently apply and the Board proposes
one and one-half years. In § 204.2(e) of
will continue to apply to these accounts.
Regulation D, the Board currently
Thus, such an account would not be
defines a “transaction acccount” to be
subject to transaction account reserve
any deposit payable on demand or any
requirements so long as the depositor is
account from which the depositor is
permitted to make no more than six
permitted to make withdrawals by
transfers per month by means of
negotiable or transferable instrument,
preauthorized, automatic, or telephonic:
payment orders of withdrawal,
or data transmission agreement, order,
telephone transfers, or other similar
or instruction and no more than three of
device for the purpose of making
these six transfers may be by check,
payments to third parties.
draft, or other similar order drawn by
the depositor. The transfer limitation
The Board excludes from the
would continue effectively to limit the
definition of “transaction account"
scope of savings accounts’ use for
savings accounts that permit the
transaction purposes without placing
depositor to make withdrawals for the
undue burdens on current holders of
purpose of making transfers to other
MMDAs or unduly placing depository
accounts of the depositor or for covering
institutions at a competitive
or making third-party payments if the
disadvantage with money market
transactions are of a certain type and if
mutual funds. Any account that
the number of transactions is limited.
otherwise meets the definition of
For example, an account is not a
“money market deposit account” but
“transaction account” if the depositor is
that exceeds the six transfer rule (or
permitted to make no more than three
three draft rule) and any other account
withdrawals per month or four-week
that meets the definition of “savings
statement cycle by means of a
deposit” but that exceeds the three
preauthorized or telephone or data
transfer rule (none of which can be by
transmission agreement, order, or
check) would be considered a “demand
instruction for the purpose of
deposit” (and thus under a related
transferring funds to another account,
provision in the Board’s Regulation Q
including a transaction account, or for
(12 CFR Part 217) could not earn
the purpose of making a third party
interest) unless the depositor is eligible
payment.
to maintain a NOW account or an ATS
As a general rule, the Board considers
account: in such a case, the account
any account that permits the depositor
would be considered a NOW account.
to make withdrawals or third party
2. The Board also proposes to amend
payments by means of a check, draft or
its definition of “savings deposit” in
other similar order to be a “transaction
Regulation D to remove the $150,000
account”. However, the Board excludes
limitation on business savings accounts.
from the definition of “transaction
This limitation now applies to ordinary
account” any money market deposit
passbook and statement savings
account (“MMDA”) from which the
accounts but not to MMDAs.
depositor is permitted to make no more
3. Currently, section 19(j) of the
than six transfers per month or
Federal Reserve Act provides that a
statement cycle of at least four weeks to
depositor may withdraw funds from a
another account, to the institution itself,
time deposit before maturity only under
or to a third party by means of a
the rules and regulations of the Board. A
preauthorized, automatic, or telephonic
mandatory early withdrawal penalty
or data transmission agreement, order,
helps to distinguish transaction accounts
or instruction and no more than three of
from time deposits and to enforce the
the six such transfers may be by check
reservable and nonreservable
nonpersonal time deposits, the Board is
redefining time deposits to require a
penalty for certain early Withdrawals if
such withdrawals are permitted. The
amendments are digcussed in detail
below.

Federal Register / Vol. 51, No. 1 / Thursday, January 2, 1986 / Proposed Rules
differences in maturities on time
deposits as well as to enforce interest
rate ceilings. The express statutory
authority to prescribe rules regarding
withdrawals expires on March 31,1986,
however, and the Board no longer will
require such a penalty under that
authority. Nevertheless, the Board still
believes that the early withdrawal of t^ie
funds from time deposits undermines the
distinction between transaction
accounts and time deposits and between
deposits of varying maturities for
monetary policy purposes under
Regulation D. Therefore, the Board
proposes to redefine "time deposit" to
incorporate an early withdrawals where
rertain early withdrawals are permitted.
A depository institution need not
include the penalty where no early
withdrawals are permitted but if it does
permit certain early withdrawals
without imposing any minimum penalty,
the deposit may not be a “time deposit”
for purposes of Regulation D.
The Board proposes to consider any
deposit from which withdrawals are
permitted within the first six days after
the date of deposit to be a “time
deposit” only if it meets the other
criteria for a time deposit and is subject
to a minimum penalty equal to seven
days’ simple interest on the amount
withdrawn. If a nonpersonal time
deposit has a stated maturity or notice
period of one and one-half years or
more, and if early withdrawals are
permitted after six days but before 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 to the appropriate
reserve requirements.
In addition to their use in
distinguishing between accounts, early
withdrawal penalties help to reduce the
adverse effects on the earnings and
liquidity of depository institutions
caused by early withdrawals. Early
withdrawals can adversely affect the
ability of institutions to balance
maturities of assets and liabilities. The
proposed penalties address reserve
requirement concerns, but because they
will not require penalties on all early
withdrawals from time .deposits, such
penalties may not be sufficient for
safety and soundness purposes.
Accordingly, the Board will consult with
the other federal depository regulatory

agencies concerning the appropriate
structure and use of these penalties to
address concerns about safety and
soundness.
4. Currently, the Board excludes from
the term "transaction account” a savings
deposit that permits the depositor to
make no more than three preauthorized
or telephone transfers per month and
MMDAs with no more than six such
transfers per month. The Board has been
asked whether transfers by remote
computer and other telecommunications
access count toward these totals if the
customer may electronically withdraw
funds from such accounts and then
redeposit the funds in a transaction or
other account by means of an electronic
device (such as a computer or touch
tone telephone). The Board has
concluded that each such withdrawal
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
depository institution’s premises to
order transfers and using oral
commands over the telephone to order
transfers. These remote terminals would
be distinguished from automatic teller
machines (“ATMs”) and remote service
units (“RSUs”).
5. The Board proposes to make
technical amendments to other portions
of the regulation to remove obsolete
terms and requirements.
6. Finally, an additional reporting and
reserve maintenance issue must be
clarified. Because MMDA-type deposits
held by depository institutions
beginning with April 1,1986, will be
subject to the phase-in schedules for
federal reserve requirements rather than
to full reserve requirements, 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 the
reserve maintenance period
commencing April 17,1986, which
corresponds to the quarterly
^computation period beginning March 18,
1986.
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 proposal would
not impose any additional reporting or
recordkeeping requirements. The
purpose of this proposal is to request
comment on any alternatives that the

29

public believes may be preferable to the
Board’s proposed amendment of its
Regulation D set out below. Suggested
alternatives will be considered when
comments are reviewed. The proposed
rule would apply to all depository
institutions. It is not anticipated that the
proposal will have a negative effect on
the ability of small depository
institutions to attract deposits.
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
U.S.C. 461(a)), the Board proposes to
amend 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. Section 204.2 would be amended by
revising the introductory text to § 204.2,
paragraph (b, (c), (d), (e)(1) and (2),
(f)(l)(i), (ii), (v), and (3) 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
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
(i) 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 w 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

30

Federal Register / Vol. 51, No. 1 / Thursday, January 2, 1986 / Proposed Rules

agreement); (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; and (ix) the
remaining balance in an account that
meets the definition of “time deposit" in
§ 204.2(c) from which a partial early
withdrawal has been made.
(2) The term “demand deposit” also
includes: (i) any deposit described in
§ 204.2(d)(2)(i) if the depositor is
authorized or permitted to exceed the
transfer limitation specified in that
section unless the depositor is eligible to
hold an ATS account; and (ii) any
deposit described in § 204.2(d)(2)(ii) if
the depositor is authorized or permitted
to exceed the transfer limitations
specified in that section unless the
depositor is eligible to hold a NOW
account.
(3) “Demand deposit" does not
include: (i) any obligation that is a time
deposit under § 204.2(c)(2)(ii); or (ii)
checks or drafts drawn by the
depository institution on the Federal
Reserve or on another depository
institution.
(c)(1) “Time deposit” means a deposit
with a stated maturity of at least seven
days and that the depositor does not
have a right and is not permitted to
withdraw for a period within six days
after the .date of deposit unless the
deposit is subject to an early
withdrawal penalty of at least seven
days interest on amounts withdrawn
within the first six days after deposit. A
time deposit from which a partial early
withdrawal is made ceases to be a “time
deposit” on the date of withdrawal
unless the remaining balance is placed
in a new account meeting the definition
of “time deposit,” An account that
otherwise meets the definition of “time
deposit” but does not require such a
penalty is a “transaction account” 3
“Time deposit” includes funds: (i)
Payable on a specified date not less
than seven days after the date of
deposit; (ii) payable at the expiration of
a specified time not less than seven
days after the date of deposit; (iii)
payable only after the depositor gives
the depository institution actual written
notice of an intended withdrawal and
the notice is received prior to the time
required in the contract which cannot be
less than seven days prior to
3 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 subject to the minimum penalty
described in § 204.2(f)(3).

withdrawal; and (iv) held in “club”
asccounts (such as “Christmas club"
accounts and “vacation club” accounts
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.
(2) The term “time deposit” also
includes (i) a “savings deposit”; and (ii)
borrowings, regardless of maturity,
represented by a promissory note, and
acknowledgement 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; or (C) a foreign
national government, or an agency or
instrumentality thereof,4 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 (E) any other
foreign, international, or supra national
entity specifically designated by the
Board.
(3) A time deposit may be represented
by a transferable or nontransferable, or
a negotiable or nonnegotiable,
certificate, instrument, passbook,
statement, or otherwise, A “time
deposit” includes share certificates and
certificates of indebtedness issued by
credit unions, and certificate accounts
and notice accounts issued by savings
and loan associations.
(d)(1) “Savings deposit” means a
deposit or account with respect to which
the depositor is not required by the
deposit contract but may at any time be
required by the depository institution to
give written notice of an intended
withdrawal not less than seven days
before withdrawal is made, and that is
not payable on a specified date or at the
expiration of a specified time after the
date of deposit. The term “savings
deposit” includes a regular share
account at a credit union and a regular
account at a savings and loan
association.
(2) The term “savings deposit” also
includes: (i) A deposit that otherwise
4 Other than States, provinces, municipalities, or
other regional or local governmental units or
agencies or instrumentalities thereof.

meets the definition of “savings deposit”
and which, under the terms of the
deposit contract or by practice of the
depository institution, the depositor is
permitted or authorized to make no
more than three withdrawals per month
oi^statement cycle (or similar period) of
at least four weeks for the purpose of
transferring funds to another account
(including a transaction account) or for
making payment to a third party, other
than the depository institution itself, by
means of preauthorized or telephonic or
data transmission agreement, order or
instruction but it not allowed to make
any withdrawals or transfers by check,
draft or similar order (including by debit
card or transfer at an ATM or RSU); and
(ii) a deposit, commonly known as a
“money market deposit account”
(“MMDA”), that otherwise meets the
definition of “savings deposit” and
which, under the terms of the deposit
contract or by practice of the depository
institution, the depositor is permitted or
authorized to make no more than six
transfers per month or statement cycle
(or similar period) of at least four weeks
to another account (including a
transaction account) of the depositor at
the same institution, to the institution
itself, or to a third party by means of
preauthorized, automatic or telephonic
or data transmission agreement, order or
instruction and no more than three of
the six such transfers may be by check,
draft or similar order (including debit
card or transfer at an ATM or RSU)
drawn by the depositor.
(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)(1) “Transaction account” means a
deposit or account on which the
depositor or account holder is permitted
to make withdrawals by negotiable or
transferable instrument, payment orders
of withdrawal, telephone transfers, or
other similar device for the purpose of
making payments or transfers to the
institution itself, to other accounts of the
depositor, or 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 (“RSU"), or by debit card.
“Transaction account” includes:
(i) Demand deposits;
(ii) Deposits or accounts subject to
check, draft, negotiable order of
withdrawal, share draft, or other similar

Federal Register / Vol. 51, No. 1 / Thursday, January 2, 1986 / Proposed Rules
item including the accounts authorized
by 12 U.S.C. 1832(a) (“NOW accounts”)
on which the depository institution has
reserved the right to require at least
seven days’ notice prior to withdrawal
or transfer of any funds in the account
provided that the account consists of
funds in which the entire beneficial
interest is held by a party eligible to
have such an account as prescribed by
12 U.S.C. 1832(a)(1);
(iii) Deposits or accounts, such as
accounts authorized by 12 U.S.C. 371a
(automatic transfer accounts or “ATS
accounts”), on which the depository
institution has reserved the right to
require at least seven days’ notice prior
to withdrawal or transfer of any funds in
the account and from which more than
three withdrawals per month 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 accounts provided that the
account consists of funds in which the
entire beneficial interest is held by one
or more individuals as prescribed by 12
U.S.C. 371a;
(iv) 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.
(2) “Transaction account” does not
include:
(i)
Deposits or accounts defined in
§ 204.2(d)(2)(i) under the terms of which,
or by practice of the depository
institution, the depositor is permitted or
authorized to make no more than three
withdrawals per month for purposes of
transferring funds to another account
(including a “transaction account”) or
for making a payment to a third party by
means of preauthorized, automatic, or
telephonic or data transmission
agreement, order, or instruction. An
account that permits or 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” regardless of
whether more than the allowable
number of withdrawals actually 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 by electronic
instruction (including computer or touchtone telephone), 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 withdrawals
for the purpose of repaying loans and
associated expenses at the same
depository institution (as originator or
servicer) regardless of the number of
such transfers.
(ii) A deposit described in
§ 204.2(d)(2)(ii), commonly known as a
“money market deposit account”
("MMDA”), that otherwise meets the
definition of “savings deposit” and
which, under the terms of the deposit
contract or by practice of the depository
institution, the depositor is permitted or
authorized to make no more than six
transfers per month or statement cycle
(or similar period) of at least four weeks
to another account (including a
transaction account) of the depositor at
the same institution, to the institution
itself, or to a third party by means of
preauthorized, automatic or telephonic
or data transmission order or instruction
and no more than three of the six such
transfers may be by check, draft or
similar order (including debit card)
drawn by the depositor. Such an
account is not necessarily a “transaction
account” by virtue of an arrangement
that permits withdrawals for the
purpose of repaying loans and
associated expenses at the same
depository institution (as originator or
servicer), but each such withdrawal
must be counted as one of the
permissible six transfers.
*

*

*

*

*

(f)(1) “Nonpersonal time deposit”
means:
(i) A time deposit, including a 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 a savings
deposit, that represents funds deposited
to the credit of a depositor that is not a
natural person, other that 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

31

any bankers’ acceptances (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, 5
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 (E) any other
foreign, international, or supra national
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
early withdrawal must be subject to a
minimum early withdrawal penalty
equal to at least one month’s simple
interest on the amount withdrawn for
any withdrawals that occur more than
six days but within one-half years after
the date of deposit or it 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 (and thus will be subject
to a three percent reserve requirement).
*

*

*

*

*

By order of the Board of Governors of the
Federal Reserve System, December 23,1985.
William W. W iles,

Secretary of the Board.
[FR Doc. 85-30740 Filed 12-31-85; 8:45 am]
BILLING CODE 6210-01-M

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