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F ederal R eserve Bank
DALLAS, TEXAS

of

Da lla s

75222
C irc u la r No. 78-72
June 5, 1978

REGULATION Q — INTEREST ON DEPOSITS
Maximum Rates of Interest Payable on IRA and Keogh Accounts

TO ALL MEMBER BANKS AND OTHERS CONCERNED
IN THE ELEVENTH FEDERAL RESERVE DISTRICT:
Following is the text of a statement issued by the Board of Governors of the Federal
Reserve System:
T h e Board of Governors of the Federal Reserve System today (May 26, 1978) an­
nounced that member banks w ill be permitted to pay up to 8 percent interest on all
Individual Retirement and Keogh accounts beginning June 1.
The Board announced on May 11 that the ceiling rate of interest of IRA and Keogh
accounts w ill be raised to 8 percent on June 1 only for funds deposited on or after that
date. T h e existing ceiling rate of 7 3 /4 percent was to continue to apply to IRA and
Keogh deposits made before then.
Since that time the Board has received numerous comments indicating that a "split"
rate for IRA and Keogh accounts would cause substantial and costly operational prob­
lems for member banks with no offsetting benefits to either consumers or the banks.
In view of these problems, the Board w ill perm it payment of the h igher 8 percent
rate, effective June 1, for both new and outstanding time deposits held in IRA and
Keogh accounts.
T h e Board said its action should not be regarded as a precedent for any possible
future changes in ceiling rates on outstanding IRA/Keogh accounts.
A copy of the Board's o rd er is enclosed. Sim ilar action is expected to be consid­
ered by the Federal Deposit Insurance Corporation for fe d erally insured mutual sav­
ings banks and commercial banks that are not members of the Federal Reserve System,
and by the Federal Home Loan Bank Board for members of the Federal Home Loan Bank
System, p rin c ip a lly fe d erally insured savings and loan associations.
T h is change to Regulation Q w ill not effect the Supplement effective June 1, 1978, fo r­
w arded to you under C irc u la r No. 78-62 dated May 17, 1978, since the action taken was a Board
policy interpretation.
Any questions may be directed to the Bank Supervision and Regulations Department,
Consumer Affairs Section, at Ext. 6171 or 6181.
Sincerely yo urs,
Robert H . Boykin
First Vice President
Enclosure
Banks and others are encouraged to use the following incoming W A T S numbers in contacting this Bank:
1-8 00 -492 -440 3 (intrastate) and 1-800 -527 -497 0 (interstate). For calls placed locally, please use 651 plus
the extension referred to above.

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

TITLE 12— BANKS AND BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A—BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
(REGULATION Q)
(Docket No. R-0166)
P a rt 217—INTEREST ON DEPOSITS
Maximum Rates of I n te re s t P a y a b le

AGENCY:

Board of G o v e rn o rs of th e Federal R e s e r v e S y stem .

ACTION:

Final Rule.

SUMMARY: In its O r d e r d a te d May 11, 1978 (43 FR 21453), th e Board a n n o u n c e d an
am endm ent to Regulation Q, effective J u n e 1, 1978, th a t p e rm its m em ber b a n k s to offer to
d e p o s ito rs two new c a t e g o rie s of time d e p o s its a n d p ro v id e d that mem ber b a n k s may pay
in t e r e s t on Individual R etire m e n t A ccount (IRA) o r Keogh (H .R . 10) Plan time dep o sits
u n d e r $100,000 a t a r a te not in e x c e s s of 8 p e r c e n t . T h e Board stated th a t the 8 p e r c e n t
r a t e could b e paid only on new time d e p o s it s o r additional f u n d s d e p o sited to e x istin g
acc o u n ts ori o r a fte r J u n e 1 a n d th a t r a t e s paid b y m em ber b a n k s on fu n d s c u r r e n t l y on
d e p o s it in IRA/Keogh time d e p o sits could not be in c re a s e d p r i o r to the m atu rity of su ch
f u n d s . After c o n s id e ra tio n of th e o perational p ro b le m s mem ber b a n k s would face as a r e ­
s u lt of th is d e c is io n , th e Board h a s d e te rm in e d to p e rm it m em ber b a n k s to pay th e new
8 p e r c e n t r a t e , effective J u n e 1, 1978, on a n y o u ts ta n d in g time d e p o s its held in IRA o r
Keogh Plan a c c o u n ts .
EFFECTIVE DATE:

J u n e 1, 1978.

FOR FURTHER INFORMATION, CONTACT: G ilb e rt T . S c h w a r tz , S e n io r A tto rn e y ,
(202/452-3623) o r A nthony F. Cole, A tto r n e y , (202/452-3711) Legal D ivision, Board of
G o v e rn o rs of the F ederal R e s e rv e System , W ashington, D .C . 20551 .
SUPPLEMENTARY INFORMATION: Effective J u n e 1, 1978, th e Board am ended Section
217.7 of R egulation Q (12 CFR 217.7) to e s ta b lis h two new c a t e g o rie s of time d e p o s its .
U n d e r th e p r o v is io n s of th e f i r s t new d e p o s it c a t e g o r y , mem ber b a n k s a r e p e rm itted to p a y
in te r e s t to d e p o s it o r s a t a maximum r a t e of 7 3 /4 p e r c e n t on d e p o sits of $1,000 o r more
m a tu rin g in e ig h t y e a r s o r m ore. T h e seco n d new d e p o sit c a t e g o r y e s t a b li s h e d by the
Board a u th o riz e s mem ber b a n k s to p a y in te r e s t on n o nn eg o tiab le time d e p o sits of $10,000
o r m ore with m a tu ritie s of 26 w e e k s a t a maximum r a te equal to the d is c o u n t r a te (auction
a v e r a g e ) on th e most re c e n tl y is su e d s ix -m o n th United States T r e a s u r y b ills .
In a d d itio n , the Board a m e n d e d , effective J u n e 1, 1978, th e e x istin g p ro v is io n s
of Regulation Q th a t p r o v i d e th a t m ember b a n k s may pay in te r e s t on Individual R etire m e n t

- 2 A ccount a n d Keogh (H .R . 10) Plan time d e p o s it s of less th a n $100,000 with m a tu ritie s of
th r e e y e a r s o r more (12 CFR 2 1 7 .7 (e )) a t a ra te not in e x c e s s of th e h ig h e s t of a n y of th e
p e r m is s i b le r a t e s th a t c an be paid on time d e p o s its u n d e r $100,000 b y a n y f e d e ra lly in ­
s u r e d commercial b a n k , mutual s a v in g s b a n k o r s a v in g s a n d loan a s s o c ia tio n . T h e p r o ­
v isio n w as am e n d ed to p r o v i d e th a t the r a te paid on such time d e p o s its shall be a t a ra te
not in e x c e s s of th e h ig h e s t of a n y of th e p e r m is s i b le ra te s th a t c an be paid on time d e ­
po s its u n d e r $100,000 with m a tu ritie s in e x c e s s of six months (26 w eeks) by a n y F e d e ra lly
i n s u r e d commercial b a n k , mutual s a v in g s b a n k o r s a v in g s a n d loan a ss o c ia tio n .
In th is c o n n e c tio n , th e Board stated th a t s in ce th e F ed eral Home Loan Bank
Board a n d th e F ed eral Deposit I n s u r a n c e C o rp o ra tio n w e re ta k in g a c tio n , effective J u n e 1,
to e s ta b li s h a new c a te g o ry of time d e p o s it with a m a tu rity of eig h t o r more y e a r s for fe d ­
e r a l l y i n s u r e d s a v in g s a n d loan a ss o c ia tio n s a n d mutual s a v i n g s b a n k s at a c e ilin g rate
of 8 p e r c e n t , m em ber b a n k s may pay 8 p e r c e n t on IRA/Keogh time d e p o sits with m a tu rities
of t h r e e o r more y e a r s . T h e Board f u r t h e r s ta te d , h o w e v e r, th a t th e new 8 p e r c e n t rate
may b e paid only on new time d e p o s its o r a d d itio n a l fu n d s d e p o site d to e x istin g a c c o u n ts ,
a n d t h a t ra te s p a id b y mem ber b a n k s on f u n d s c u r r e n t l y on d e p o s it in IRA/Keogh time
d e p o s its may not be in c r e a s e d p r i o r to th e m a tu rity of such f u n d s .
T h e Board h a s now d e te rm in e d to p e rm it mem ber b a n k s , effective J u n e 1, to
i n c r e a s e th e r a te of i n te r e s t paid on e x is t in g IRA a n d Keogh Plan time d e p o s it f u n d s with
o rig in a l m a tu ritie s of t h r e e y e a r s o r m ore. T h e r a t e of in t e r e s t paid on e x is tin g IRA a n d
Keogh f u n d s with m a tu rities of less th a n th r e e y e a r s may a ls o be in c re a s e d to 8 p e r c e n t ,
effective J u n e 1, if th e m a tu ritie s of s u c h ob lig ation s a r e e x te n d e d to t h r e e y e a r s o r more
from th e date of th e in c r e a s e in th e ra te of i n t e r e s t p a id .
T h e Board is ta k in g th is action on th e b a s i s of comments r e c e iv e d w h ich in d i­
cate th a t th e B o a r d 's e a r l i e r d e te rm in a tio n not to p e rm it a n in c re a s e in the ra te s of i n t e r ­
e s t paid on o u ts ta n d in g IRA a n d Keogh f u n d s would c a u s e s u b sta n tia l a n d costly o p eratio nal
p ro b le m s w ith no offsetting benefit to e i t h e r b a n k s o r c o n s u m e r s . T h e Board s ta te d , how­
e v e r , t h a t its action sh o u ld not be r e g a r d e d a s e s t a b lis h in g a p r e c e d e n t a n d th a t s h o u ld
c eilin g r a te s of i n t e r e s t be c h a n g e d in the f u t u r e , th e Board may not n e c e s s a r i l y p e rm it
the c eilin g r a te of i n t e r e s t p a y a b le on e x istin g r e tir e m e n t s a v in g s to c h a n g e .
It is a n tic ip a te d tha t th is action will a lle v ia te o perational p ro b le m s a nd will r e s u lt
in s u b s ta n tia l p u b lic b e n efits by p e rm ittin g e x is tin g r e tir e m e n t s a v e r s to obtain the most
a d v a n ta g e o u s IRA a n d Keogh p r o g r a m s . In o r d e r to facilitate th e a c h ie v e m e n t of t h e se o b­
je c tiv e s a n d s in c e th is action re lie v e s an e x istin g r e g u l a t o r y r e s t r i c t i o n , th e Board fin d s
th a t a p p lic atio n of th e notice a n d p u b lic p a rtic ip a tio n p r o v is i o n s of 5 U . S . C . § 553 to this
action would be c o n t r a r y to th e p u b lic in te r e s t a n d th a t good c a u s e e x is t s for making this
action effective in less th a n 30 d a y s . T h e B o a r d 's action is ta k e n a t th is time, a f te r c o n ­
su ltatio n with th e Federal Deposit I n s u r a n c e C o rpo ra tio n a n d th e Federal Home Loan Bank
B o ard , p u r s u a n t to its a u t h o r i t y u n d e r Section 19(j ) of the Federal R e s e r v e Act (12 U . S . C .
§ 371b).
By o r d e r of th e Board of G o v e r n o r s , May 26, 1978.
(Signed) Griffith L. Garwood
D eputy S e c r e t a r y of th e Board
(SEAL)