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federa l

reserve

ba nk o f

DALLAS. TEXAS

Dallas

75222
Circular No. 82-116
September 15, 1982

REGULATIONS D AND Q
AMENDMENTS
TO ALL MEMBER BANKS AND OTHERS CONCERNED
IN THE ELEVENTH FEDERAL RESERVE DISTRICT:
The Board of Governors of the Federal Reserve System has amended its
Regulation D (Reserve Requirements of Depository Institutions) and Regulation Q
(Interest on Deposits) as follows:
1. Regulation D has been amended in order to classify the new 7- to
31-day account as a time deposit. This new account was explained in
our Circular No. 82-97 dated August 11, 1982. The shortest maturity
for all other time deposits remains 14 days.
2. The Board amended Regulation Q to permit member banks to offer,
exempt from interest rate ceilings, automatically renewable small
denomination (less than $100,000) repurchase agreements on U.S.
Govrment and agency securities. At the same time, the Board re­
moved the present 89-day maturity limit on such repurchase
agreements.
In addition, the Board has requested comment by October 1, 1982, on the
minimum maturity of all time deposits and limits to business savings accounts at
member banks.
Attached are copies of the Board's press release and the material as
submitted for publication in the Federal Register. Questions regarding the material
contained in this circular should be directed to this Bank's Legal Department,
Extension 6171.
Additional copies of this circular and the attachm ent will be furnished
upon request to the Department of Communications, Financial and Community
Affairs, Extension 6289.
Sincerely yours,

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

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

FEDERA^RESERVEpresjnj^lease

For immediate release

August 25 , 1982

The Federal Reserve Board today announced changes under its Regulation
D (Reserves of Depository Institutions) and Regulation Q (Interest on Deposits)
and two proposals under these regulations.
The Board's actions, spelled out in accompanying official notices, were
1.

In connection with the recent authorization, effective
September
1, of a new 7 to 31 day account by the
Depository Institutions Deregulation Committee (DIDC),
the Board amended Regulation D to classify the new
account as a time deposit.
The shortest maturity
for all other time deposits remains 14 days.
— Simultaneously, the Board issued for comment
a proposal to make the minimum maturity on
all time accounts, including large certificates
of deposit (over $100,000), seven days.
The
Board requested comment by October 29, 1982.

2.

The Board
amended Regulation Q to permit member banks
to offer,
exempt from interest rate ceilings,
automatically renewable small denomination (less than
$100,000) repurchase agreements on U.S. Government and
agency securities ("RPs"). At the same time, the
Board removed the present 89-day maturity limit on
such repurchase agreements.

3. The Board
requested comment on what limit should apply
to business savings accounts at member banks. Although
the Board favors having a limit, it will consider
comment on no limitation.
The present limit is $150,000.
The Board indicated that it was specifically interested
in comments concerning the potential impact on monetary
control of raising or removing the limitation on business
savings.
The Board requested comment by October 1, 1982.

Attachments

4

FEDERAL RESERVE SYSTEM

Regulation D
[12 CFR Part 204]
[Docket No. R-0416]
RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
Time Deposits With Original Maturities or
Notice Periods of Seven to Thirteen Days

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Final rule.

SUMMARY: The Board of Governors has amended Regulation D— Reserve Requirements
of Depository Institutions (12 CFR Part 204) to define the new seven
to 31 day deposit category authorized by the Depository Institutions
Deregulation Committee ("DIDC") as a "time deposit" for purposes of
Regulation D. Accordingly, these deposits will be subject to no basic
reserve requirements if they are personal time deposits and to a 3 per
cent reserve requirement if they are nonpersonal time deposits. All
other deposit categories, with original maturities or notice periods
of less than 14 days, will continue to be defined as "demand deposits"
and subject to transaction account reserve requirements. This action
was taken in view of the DIDC's authorization of a new category of deposit
with an original maturity or notice period of no less than seven nor
more than 31 days and a ceiling rate based on the 91-day Treasury bill
rate (auction average on a discount basis).
EFFECTIVE DATE: September 1, 1982. The first reserve maintenance period
to which this amendment applies commences September 9, 1982.
FOR FURTHER INFORMATION CONTACT: Gilbert T. Schwartz, Associate General
Counsel (202/452-3625), Paul S. Pilecki, Senior Attorney (202/452-3281),
or Robert G. Ballen, Attorney (202/452-3265), Legal Division, Board
of Governors of the Federal Reserve System, Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION: The Monetary Control Act of 1980 ("MCA")
(Title I of P.L. 96-221; 94 Stat. 132) defines "transaction account"
as a deposit or account on which the depositor or account holder is
permitted to make payments or transfers to third persons or others including
demand deposits (12 U.S.C. § 461(b)(1)(C)). The Board is empowered
to determine which deposits or accounts are demand deposits and, thus,
transaction accounts for reserve requirement purposes (12 U.S.C. § 461(a)).
The Board at present defines "demand deposit" to include any deposit

5

or account with a maturity or required notice period of less than 14
days (12 CFR § 204.2(b)(1)). Deposits or accounts with a maturity or
required notice period of 14 days or more currently are defined as "time
deposits."
The Depository Institutions Deregulation Committee ("DIDC"),
pursuant to its authority under the Depository Institutions Deregulation
Act of 1980 (Title II of Pub. L. 96-221), authorized Federally-insured
..
commercial banks, mutual savings banks, and savings and loan associations^-'
to offer, effective September 1, 1982, a new category of time deposit
with an original maturity or required notice period of seven to 31 days,
at the discretion of the depository institution, with a required minimum
deposit balance of $20,000 and a ceiling rate tied to the 91-day Treasury
bill rate (auction average on a discount basis). Thrift institutions
may pay the bill rate and commercial banks may pay 25 basis points less
than the bill rate. The
interest rate ceilings will be suspended whenever
the 91-day Treasury bill
rate has been nine per cent or
below for four
consecutive Treasury bill auctions and, in any event, will be eliminated
on May 1, 1983. 47 Fed. Reg. 34127; August 6, 1982.
Under the Board's Regulation D, the new instrument, if issued
with an original maturity or required notice period of seven to 13 days,
would be considered a transaction account and as such subject to a three
or twelve per cent reserve requirement, depending upon the level of
total net transaction accounts at the depository institution. If issued
with an original maturity or required notice period of 14 to 31 days,
the new instrument would be considered a time deposit and as such would
not be subject to basic reserve requirements if nontransferable and
held by a natural person or would be subject to a 3 per
cent reserve
requirement if transferable or if held by other thana natural person.
Thus, the existing reserve requirement structure presents a disincentive
for issuing the new instrument with an original maturity or required
notice period of seven to 13 days.
In light of the DIDC's objective in authorizing this new instrument
to enable depository institutions to compete more effectively with short­
term market instruments, the Board has amended its regulations so that
the new instrument, when issued with an original maturity or required
notice period of seven to 13 days will be regarded as a time deposit
for reserve requirement purposes. The new instrument has various restrictions
that limit its transactional capabilities, including a $20,000 minimum
deposit balance, prohibitions against third party negotiable drafts
drawn directly on the instrument and sweep arrangements involving the
instrument, and a requirement that it be issued in nonnegotiable form.

1/ Generally, United States branches and agencies of foreign banks
and Edge or Agreement Corporations may offer this account pursuant
to section 7(a)(1)(A) of the International Banking Act of 1978 (12
U.S.C. § 3105(a)(1)(A)), section 18(g) of the Federal Deposit Insurance
Act (12 U.S.C. § 1828(g)), sections 25 and 25(a) of the Federal Reserve
Act (12 U.S.C. §§ 601 et seq., 611 et seq.) and 12 CFR S 211.4(d).

6

Deposits or accounts issued by depository institutions subject to the
rules of the DIDC with original maturities or required notice periods
of less than 14 days that do not have all of the characteristics of
the new seven to 31 day instrument will continue to be treated as demand
deposits and will be subject to reserve requirements at the ratios applicable
to transaction accounts.
A deposit or account issued with an original maturity or required
notice period of seven to 13 days by depository institutions that are
not subject to the rules of the DIDC will be regarded as a time deposit
for purposes of Regulation D only if a minimum deposit balance of $20,000
is maintained, it is in nonnegotiable form, and the account otherwise
would not be classified as a transaction account under Regulation D.
This, however, will not affect the ability of such institutions to offer
other types of time deposits. It should be noted that the Board also
is seeking public comment on a proposed amendment that would regard
any deposit issued with an original maturity or required notice period
of
seven days or more as a time deposit.
In view of the fact that commercial banks, mutual savings
banks, and savings and loan associations may offer the new time deposit
category authorized by the DIDC as of September 1, 1982, the Board finds
that application of the notice and public participation provisions of
5 U.S.C. § 553 to this action would be contrary to the public interest,
and that good cause exists for making this action effective September 1,
1982.
List of Subjects in 12 CFR Part 204
Banks, banking; Currency; Federal Reserve System; Penalties;
Reporting requirements.
Pursuant to its authority under sections 19, 25, and 25(a)
of
the Federal Reserve Act (12 U.S.C. §§ 461, 601 et seq., 611 et seq.)
and under section 7 of the International Banking Act of 1978 (12 U.S.C.
§ 3105), the Board amends Regulation D (12 CFR Part 204) effective September 1,
198 2, as follows:
1.
as follows:

By amending subparagraph (2) of section 204.2(b) to read

SECTION 204.2— DEFINITIONS
*
(b)

*

*

*

*

* * *

(2) a "demand deposit" does not include (i) checks or
drafts drawn by the depository institution on the Federal Reserve or
on another depository institution; (ii) a deposit or account issued
pursuant to 12 CFR § 1204.121, including those with an original maturity
or required notice period of seven to 13 days; or (iii) for depository

7

institutions not subject to the rules of the Depository Institutions
Deregulation Committee under 12 U.S.C. § 3501 et seq., a deposit or
account issued with an original maturity or required notice period of
seven to 13 days if such deposit or account is nonnegotiable, subject
to a minimum balance of $20,000, and not otherwise a transaction account
under section 204.2(e) of this Part.
*
2.
as follows:

*

*

*

*

By amending subparagraph (1) of section 204.2(c) to read

SECTION 204.2— DEFINITIONS
(c) (1)

* * *

(E) that constitute a "savings deposit" which is not
regarded as a "transaction account;"
(ii) borrowings, regardless of maturity, represented by
a promissory note, an acknowledgment of advance, or similar obligation
described in section 204.2(a)(1)(vii) that is issued to any office located
outside the United States of another depository institution or Edge
or agreement corporation organized under the laws of the United States,
to any office located outside the United States of a foreign bank, or
to institutions whose time deposits are exempt from interest rate limitations
under section 217.3(g) of Regulation Q (12 CFR 217.3(g)); and
(iii) a deposit or account issued pursuant to 12 CFR § 1204.121,
including those with an original maturity or required notice period
of seven to 13 days; or for depository institutions not subject to the
rules of the Depository Institutions Deregulation Committee under 12
U.S.C. § 3501 e . seq., a deposit or account issued with an original
t
maturity or required notice period of seven to 13 days if such deposit
or account is nonnegotiable, subject to a minimum balance of $20,000,
and is not otherwise a transaction account under section 204.2(e) of
this Part.
*

*

*

*

*

By order of the Board of Governors, August 24, 1982.

(signed) William W. Wiles

William W. Wiles
Secretary of the Board

[SEAL]

8

FEDERAL RESERVE SYSTEM

Regulations D and Q
[12 CFR Parts 204 and 217]
[Docket No. R-0417]
RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
INTEREST ON DEPOSITS

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Request for public comnent.

SUMMARY: The Board of Governors is requesting comment on a proposal
to amend Regulation Q— Interest on Deposits {12 CFR Part 217) and Regula­
tion D— Reserve Requirements of Depository Institutions (12 CFR Part 204)
to reduce the minimum maturity of all time deposits to seven days.
EFFECTIVE DATE:

Comments must be received by October 29, 1982.

ADDRESS:
Interested parties are invited to submit written data, views,
or arguments concerning the rule to William W. Wiles, Secretary, Board
of Governors of the Federal Reserve System, 20th Street and Constitution
Avenue, N.W., Washington, D.C. 20551, or should be delivered to room
B-2223 between 8:45 a.m. and 5:15 p.m. Comments may be inspected in
room B-1122 between 8:45 a.m. and 5:15 p.m., except as provided in sec­
tion 261.6(a) of the Board's Rules Regarding Availability of Information
(12 CFR 261.6(a)).
FOR FURTHER INFORMATION CONTACT: Gilbert T. Schwartz, Associate General
Counsel (202/452-3625), Paul S. Pilecki, Senior Attorney (202/452-3281),
or Beverly A. Belcamino, Legal Assistant (202/452-3623), Legal Division,
Board of Governors of the Federal Reserve System, Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION: Section 19(a) of the Federal Reserve Act
(12 U.S.C. § 461(a)) authorizes the Board to determine the types of
obligations that constitute deposits. At present, the Board defines
time deposits as deposits or accounts with a minimum maturity or required
notice period of 14 days (12 CFR §§ 204.2(c) and 217.1(b), (c)) and
defines demand deposits to include any deposit or account with a maturity
or required notice period of less than 14 days (12 CFR §§ 204.2(b)(1)
and 217.1(a)).
The Depository Institutions Deregulation Committee ("DIDC"),
pursuant to its authority under the Depository Institutions Deregulation
Act of 1980 (Title II of Pub. L. 96-221), authorized Federally-insured

g

commercial banks, mutual savings banks, and savings and loan associations
to offer, effective September 1, 1982, a new category of time deposit
with an original maturity or required notice period of seven to 31 days
at the discretion of the depository institution and a ceiling rate tied
to the 91-day Treasury bill rate (auction average on a discount basis).
Thrift institutions may pay the bill rate and commercial banks may pay
the bill rate minus 25 basis points. Under current regulations, the
seven to 31 day deposit would be defined as a transaction account if
it is issued with a maturity or required notice period of less than
14 days and, thus, would be subject to transaction account reserve require­
ments. Accordingly, the Board considered whether to amend its regulations
to regard the newly authorized account as a time deposit. The Board
amended Regulation D, effective September 1, 1982, to provide that the
seven to 31 day instrument would be regarded as a time deposit for reserve
requirement purposes. The Board also determined that it would be appropriate
to solicit public comment on the issue of lowering .the minimum maturity
on all other time deposit accounts to seven days.—^
Reducing the minimum maturity or notice requirement for all
time deposits to seven days could broaden the certificate of deposit
("CD") market for depository institutions, enabling them, among other
things, to compete more effectively through the issuance of CDs with
the Eurodollar and commercial paper markets and increasing the attractiveness
of CDs issued by smaller banks— which do not trade in the secondary
market. It would also provide depository institutions with more flexibility
to vary the maturity mix of their liability structures.
On the other hand, the Board is concerned that a seven day
time deposit could tend to reduce further the distinction between trans­
action accounts and time deposits and, conceivably, could lead to shifting
between transaction balances and seven-day CDs, which could contribute
to difficulties in interpreting the monetary aggregates. Moreover,
the liquidity positions of depository institutions could erode if, without
making compensating adjustments to the maturity structure of their assets
or their other liabilities, they were to rely more heavily on shorterterm funds obtained through issuing negotiable CDs— which typically
are acquired in large blocs from corporate and institutional investors
who are quite sensitive to changes in market conditions.
The impact of this proposal on small entities has been considered
in accordance with section 604 of the Regulatory Flexibility Act (5
U.S.C. § 604; Pub. L. 96-354). This proposal will provide an additional
tool for small banks to use in competing with larger institutions for
short term, large denomination deposits. A seven day minimum maturity
could enhance the attractiveness of CDs issued by small banks which
normally do not trade in the secondary market.
1/ In connection with this proposal, the Board additionally proposes
to reduce to seven days from 14 days the period for which an institution
must reserve the right to require notice prior to withdrawal of funds
in savings deposits (12 CFR 204.2(d)(1); 12 CFR 217.1(e)(2)).

10

To aid in consideration of this matter by the Board, interested
persons are invited to submit relevant data, views, comment or argument.
All material should be submitted in writing to the Secretary, Board
of Governors of the Federal Reserve System, Washington, D.C. 20551 to
be received by October 29, 1982. All material submitted should include
the Docket No. R-0417. Such material will be made available for inspection
and copying upon request except as provided in section 261.6(a) of the
Board's Rules Regarding Availability of Information (12 CFR 261.6(a)).
List of Subjects in 12 CFR Part 204
Banks, banking; Currency; Federal Reserve System; Penalties;
Reporting requirements.
List of Subjects in 12 CFR Part 217
Advertising; 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)) to define deposits, the Board proposes
to amend Regulation D (12 CFR Part 204) and Regulation Q (12 CFR Part 217),
as follows:
1.

In section 204.2 by revising paragraph (b) to read as

follows:
SECTION 204.2— DEFINITIONS
*

*

*

*

*

(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. The
terra includes all deposits other than time and savings deposits. 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 required
notice of withdrawal period has expired and which have not been renewed

11

(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 seven 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.
The term does not include an obligation that is a time deposit under
section 204.2(c)(1)(ii).
(2) A "demand deposit" does not include checks or drafts
drawn by the depository institution on the Federal Reserve or on another
depository institution.
*
2.

*

*

*

*

In section 204.2 by revising paragraph (c) to read as

follows:
SECTION 204.2— DEFINITIONS
*

*

*

*

*

(c)(1) "Time deposit" means (i) a deposit that the depositor
does not have a right to withdraw for a period of seven days or more
after the date of deposit. "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 upon written notice which actually is required
to begiven by the depositor not less than seven days before the date
of repayment;
(D) such as "Christmas club" accounts
and "vacation club"
accounts,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 seven days from the end of the
period; or
(E) that constitute a "savings deposit" which is not
regarded as a transaction account; and
(ii)
(2 )

* * *

* * *

*

*

*

*

*

12

3.

In section 217.1 by revising paragraph (b) to read as

follows:
SECTION 217.1— DEFINITIONS
*

*

*

*

*

(b)(1) "Time deposit" means (i) a deposit that the depositor
does not have a right to withdraw for a period of seven days or more
after the date of deposit.
"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 upon written notice which actually is required
to be given b^/the depositor not less than seven days before the date
of repayment;—'
(D) such as "Christmas club" accounts and "vacation club"
accounts, 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 seven days from the end of the
period; and
(ii) an "international banking facility time deposit" as
defined in this section.
(2)

* * *
*

*

*

*

*

1/ A deposit with respect to which the bank merely reserves the right
to require notice of not less than seven days before any withdrawal
is made is not a "time deposit" within the meaning of the above definition.
By order of the Board of Governors, August 24, 1982.
(signed) William W. Wiles

William W. Wiles
Secretary of the Board

SEAL]

13

FEDERAL RESERVE SYSTEM

(12 CFR Part 217)
[Docket No. R-04181
Deposits as Including Certain Promissory Notes and
Other Obligations

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Final rule.

SUMMARY: The Board of Governors has amended Regulation Q— Interest
on Deposits (12 CFR Part 217) to permit member banks to issue automatically
renewable repurchase agreements on U.S. government or agency securities
("RPs") of less than $100,000 with maturities of 89 days or less exempt
from Federal interest rate ceilings. In addition, member banks will
be permitted to issue small denomination RPs with maturities of 90 days
or more exempt from interest rate ceilings. This action was taken to
maintain the competitive position of member banks vis-a-vis other depository
institutions.
EFFECTIVE DATE:

August 24, 1982.

FOR FURTHER INFORMATION CONTACT: Gilbert T. Schwartz, Associate General
Counsel (202/452-3625), or Paul S. Pilecki, Senior Attorney (202/452­
3281), Legal Division, Board of Governors of the Federal Reserve System,
Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION: Effective August 1, 1979, the Board amended
Regulation Q— Interest on Deposits (12 CFR Part 217) to subject small
denomination repurchase agreements on U.S. government or agency securities
("RPs") of 90 days or more to interest rate ceilings. Under that action,
an RP is defined as a deposit if issued in a denomination of less than
$100,000 with a maturity of 90 days or more. Small denomination RPs
with maturities of less than 90 days are exempt from the interest rate
ceilings of Regulation Q unless they can be automatically renewed or
extended. The Board continued the exemption from the definition of
deposits Cor small denomination RPs of less than 90 days in order to
not affect adversely the practice of small businesses and government
units using RPs for cash management purposes. This action was taken
in response to the increased use of RPs as a method of avoiding Regulation Q
interest rate ceilings for longer-term time deposits. The provision
prohibiting automatic renewals or extensions was intended to make effective
the 89-day maturity limit to insure that such instruments would not
be used as longer-term, small time deposit substitutes.

14

The Depository Institutions Deregulation Committee has announced
recently a schedule to deregulate the interest rate ceilings on small
denomination time deposits. Under the initial step of the program,
time deposits that mature in 3-1/2 years or longer are not subject to
a Federal interest rate ceiling. Thus, there is less incentive for
depository institutions to raise longer term funds through the issuance
of small denomination RPs. In addition, depository institutions now
have a greater variety of deposit instruments with which to compete
than were available in 1979. Accordingly, the Board believes that it
is no longer necessary to subject small denomination RPs of 90 days
or more to interest rate ceilings or to restrict member banks from offering
automatically renewable RPs of 89 days or less. Consequently, the Board
has amended Regulation Q to exempt from interest rate limitations all
member bank RPs on U.S. government and agency securities.
This action is consistent with previous actions taken by other
Federal financial institutions regulatory agencies. In this regard,
the Federal Home Loan Bank Board and the Federal Deposit Insurance Corporation
recently authorized Federally-insured savings and loan associations
and nonmember Federally-insured commercial banks and mutual savings
banks, respectively, to issue automatically renewable small denomination
RPs with maturities of less than 89 days exempt from interest rate ceilings.
Because this action is necessary to place member banks in
a competitive position similar to other depository institutions with
respect to short-term instruments, the Board believes that good cause
exists for not adhering to the notice and public participation provisions
of 5 U.S.C. § 553(b) and for making this action effective immediately.
List of Subjects in 12 CFR Part 217
Advertising; 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)) to define the term "deposit," the Board
amends, effective August 23, 1982, Regulation Q (12 CFR Part 217) by
revising section 217.1(f)(2) to read as follows:
S 217 .1— DEFINITIONS
*
(f)

* * *
(1)

* * *

*

*

*

*

15

(2) Evidences an indebtedness arising from a transfer
of direct obligations of, or obligations that are fully guaranteed as
to principal and interest by, the United States or any agency thereof
that the bank is obligated to repurchase;
*

*

*

*

*

By order of the Board of Governors, August 24, 1982.

(Signed)

William W. Wiles

William W. Wiles
Secretary of the Board
[SEAL]

16

FEDERAL RESERVE SYSTEM

REGULATIONS D AND Q
[12 CFR Parts 204 and 217]
(Docket No. R-0420)
RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
INTEREST ON DEPOSITS
Savings Deposits

AGENCY:

Board

of Governors of the Federal Reserve System.

ACTION:

Request for public

comment.

SUMMARY: The Board of Governors is requesting public comment on a pro­
posal to amend Regulation Q— Interest on Deposits (12 CFR part 217)
to increase the maximum size limitation on business savings accounts
at member banks to $250,000. Currently, member banks are not permitted
to accept savings deposits in excess of $150,000 per depositor from
organizations operated for profit. Additionally, the Board invites
comment on the possibility of eliminating this limitation completely.
EFFECTIVE DATE:

Comments must be received by October 1, 1982.

ADDRESS: Interested parties are invited to submit written data, views,
or arguments concerning the proposed rule to William W. Wiles, Secretary,
Board of Governors of the Federal Reserve System, 20th Street and Con­
stitution Avenue, N. W . , Washington, D. C. 20551, or should be delivered
to room B-2223
between 8:45 a.m. and 5:15 p.m.
Comments may beinspected
in room B-1122
between 8:45 a.m. and 5:15 p.m. except as provided
in
section 261.6(a) of the Board's Rules Regarding Availability of Informa­
tion (12 CFR 261.6 (a)).
FOR FURTHER INFORMATION CONTACT: Gilbert T. Schwartz, Associate General
Counsel (202/452-3625), Paul S. Pilecki, Senior Attorney (202/452-3281),
or Beverly A. Belcamino, Legal Assistant (202/452-3623), Legal Division,
Board of Governors of the Federal Reserve System, Washington, D. C.
20551.
SUPPLEMENTARY INFORMATION: The Board is requesting public comment on
a proposal to amend Regulation Q (12 CFR Part 217) and Regulation D
(12 CFR Part 204) to increase the maximum size limitation on business
savings accounts at member banks to $250,000. The Board also requests
comments on the possibility of eliminating this limitation.

17

The current regulations concerning business savings deposits
were established in November 1975. At that time, changes to Regula­
tion D and Regulation Q were adopted permitting member banks to accept
savings deposits from an organization operated for profit, but the
balance in such an account could not exceed $150,000.—' Similar rules
were implemented by the FDIC that applied to Federally-insured nonmember
commercial banks.
Business savings accounts at member banks were authorized
to provide small businesses, which lack direct access to the money
market, with a cash management tool that would allow these firms to
realize an explicit return on their temporarily idle cash balances.
Also, member banks were permitted to offer savings accounts to businesses
to enable the banks to compete more effectively with thrift institutions,
which could accept savings deposits from businesses.
Even though savings deposits at thrift institutions were not
subject to a size limitation, the $150,000 maximum was placed on business
savings at banks in order (1) "to limit the concentration of any poten­
tially volatile funds in savings deposits;" and (2) "to confine the
use of business savings primarily to smaller businesses."
(40 Fed.
Reg. 46301 (October 7, 1975)).
There are a number of reasons supporting an increase in the
size limitation on business savings. Since the limitation was first
established, inflation and the growth in demand for liquid assets have
reduced its effective size. If $150,000 was appropriate in 1975, a
higher limit may now be needed to provide businesses with comparable
flexibility to manage their cash positions. In addition, there are
no restrictions on the size of business savings accounts at thrifts.
The increase in the size limitation for commercial banks would enable
them to compete more effectively with thrifts for business savings,
and, if interest rates on savings deposits were to become sufficiently
attractive, with money market mutual funds.
On the other hand, a higher size limitation, or eliminating
the limitation, on business savings could increase the potential for
the development of problems in interpreting the monetary aggregates,
since business savings accounts might attract funds from demand deposits
and other liquid assets. If market interest rates approach the present
ceilings on savings deposits, or when such ceilings are removed (which
is scheduled to occur under current law by March 31, 1986), business
savings deposits could become a vehicle for effectively paying interest
on transaction funds to customers ineligible for NOW accounts. It should

1/ The size limitation on savings accounts also applies to nonprofit
organizations not operated primarily for religious, philanthropic, charitable,
educational, fraternal, or other similar purposes. Governmental units
are permitted to have savings accounts without limitation.

18

be noted that if more than three telephone or preauthorized transfers
per month were permitted on these savings deposits, the account would
be subject to transaction account reserve requirements under Regula­
tion D.
The proposal's effect on small entities has been considered
in accordance with section 604 of the Regulatory Flexibility Act (5 U.S.C.
§ 604; Pub. L. 96-354). Small banks would benefit from either a liberaliza­
tion or elimination of the limit on business savings deposits because
this change would allow these institutions to compete more effectively
with thrift institutions, which currently are subject to no such
limita­
tion. Further, small businesses should be aided by the opportunity
to place larger cash balances in interest-bearing accounts.
To aid in consideration of this matter by the Board, inter­
ested persons are invited to submit relevant data, views, comment or
argument. In particular, the Board requests views with respect to the
following issues:
a) whether $250,000 or some other limitation
should be adopted;
b) the extent to which an increase in the ceiling
or elimination of the limit on business savings
deposits might lead to circumvention of the
prohibition against payment of interest on
demand deposits; and
c) the potential for volatile swings in deposit flows
associated with this proposal, as banks have more
scope to compete for funds that can be essentially
withdrawn on demand in response to changing rate
relationships and market conditions.
All material should be submitted in writing to the Secretary, Board
of Governors of the Federal Reserve System, Washington, D. C. 20551
to be received by October 1, 1982. All material submitted should in­
clude the Docket No. R-0420. Such material will be made available for
inspection and copying upon request except as provided in section 261.6(a)
of the Board's Rules Regarding Availability of Information (12 CFR 261.6(a)).
List of Subjects in 12 CFR Part 204
Banks, banking; Currency; Federal Reserve System; Penalties;
Reporting requirements.

19

List of Subjects in 12 CFR Part 217
Advertising; 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)) to define deposits, the Board proposes
to amend Regulation D (12 CFR Part 204) and Regulation Q (12 CFR Part 217),
as follows:
1.

In section 204.2, by amending paragraph (d) to

read as

follows:
SECTION 204.2— DEFINITIONS
*
(d) (1) *

*

*

*

*

*

*

(2) For depository institutions subject to 12 CFR part 217
or 12 CFR part 329, funds deposited to the credit of, or in which any
beneficial interest is held by, a corporation, association, partnership
or other organization operated for profit may be classified as a savings
deposit if such funds do not exceed $250,000 per depositor at the depository
institution.
*
2.

*

*

*

*

In section 217.1, by amending paragraph (e) to

follows:
SECTION 217.1— DEFINITIONS
*
(e)

*

*

*

*

Savings deposits. The term "savings deposit"
means a deposit—
(1) That consists of funds deposited to the
credit of or in which the entire beneficial
interest is held by one or more individuals,
or of a corporation, association, or other or­
ganization operated primarily for religious,
philanthropic, charitable, educational, fra­
ternal, or other similar purposes and not

read as

20

2/

operated for profit;— or that consists of
funds deposited to the credit of or in which
the entire beneficial interest is held by the
United States, any state of the United
States, or any county, municipality, or po­
litical subdivision thereof, the District of
Columbia, the Commonwealth of Puerto
Rico, the Virgin Islands, American Samoa,
Guam, or political subdivision thereof; or
that consists of funds deposited to the credit
of, or in which any beneficial interest is held
by a corporation, association, or other organi­
zation not qualifying above to the extent such
funds do not exceed $250,000 per such depositor
at a member bank; and
*

*

*

*

*

2/ Deposits in joint accounts of two or more individuals may be classi­
fied as savings deposits if they meet the other requirements of the
above definition. Deposits of a partnership operated for profit may
also be classified as savings to the extent such deposits do not exceed
$250,000 per partnership at a member bank.
By order of the Board of Governors, August 24, 1982.
(signed) William W. Wiles

William W. Wiles
Secretary of the Board

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