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F ederal reserve Ba n k DALLAS. TEXAS of Dallas 75222 C irc u la r No. 79-34 M arch 1, 1979 REVISED REGULATION Q In te re st on Deposits TO A L L MEMBER BANKS AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE D IS T R IC T : Th e Board of G overnors of the Federal Reserve System has re p rin te d its Regulation Q — In te re st on Deposits— in corporating amend ments issued through December 6, 1978. Enclosed is a copy of the revised Regulation Q . Member banks and others that m aintain Regulations B inders should file the enclosed pam phlet in th e ir b in d e rs . T h e corresponding pam phlet, as amended effective December 4, 1975, and subsequent amendments should be re moved and d estro yed . Please retain the Supplem ent to Regulation Q , effective June 1, 1978, as it does not app ear in the re p rin te d pam phlet. A ny questions concerning Regulation Q should be d irected to the Con sumer A ffa irs Section of our Bank Supervisio n and Regulations D e p art m ent, E x t. 6171 o r 6269. A dditional copies of the re p rin te d pam phlet w ill be fu rn ish ed upon request to the S e c re ta ry 's O ffice of this B ank, E x t. 6267. S in c e re ly y o u rs , Robert H . Boykin F irs t V ic e President Enclosure Banks and others are encouraged to use the follow ing incoming W A T S numbers in contacting this Bank: 1-8 0 0 -4 9 2 -4 4 0 3 (intrastate) and 1 -8 0 0 -5 2 7 -4 9 7 0 (interstate). F or calls placed locally, please use 651 plus the extention referred to above. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM I N T E R E S T O N D E P O S IT S REGULATION Q (12 CFR 217) As amended effective December 6, 1978 Any inquiry relating to this regulation should be addressed to the Federal Reserve Bank of the Federal Reserve District in which the inquiry arises. DECEMBER 1978 CONTENTS Page Page Se c . 217.0— S c o p e Part of ....................... 3 Sec. 217.4— P a y m e n t o f T im e D e p o s its B e f o r e M a t u r i t y ........................................ S e c . 217.1— D ................................ 3 d e p o s it s ........................... 3 e f i n i t io n s date (a ) Dem and (b ) Tim e ................................ Tim e certificates o f d e p o s it ............. deposits ( d ) Tim e deposits, open account . . . . Tim e deposits payable after a spe cified n o t ic e .................................. 7 (d ) Penalty fo r early w ith d ra w a ls ......... 4 (f) 7 Deposits as including certain ....................... 4 (g ) M ultiple maturity time deposit . . . . cified period 3 Savings d e p o s its ................................ 5 promissory notes S e c . 217.2— D e m a n d D ( e ) Disclosure ................... 5 (a ) Interest p r o h ib ite d ............................ 5 (b ) M eaning o f in t e r e s t ....................... ................................ of early withdrawal S ec. Loans upon security of time deposits 217.5— W i t h d r a w a l p osits of Savin gs S a v in g s D e p o s it s on T im e D e (a ) M axim u m rate (b ) Modification of ................................ Loans on security o f savings deposits 5 regarding notice M anner deposits Sec. of payment 8 8 saving ........................................ 217.6— A d v e r t is in g of In te re s t 8 on M em ber banks limited to maximum ....................................................... 9 ( a ) A nnual rate o f simple interest . . . . 9 ( b ) Percentage yields based on one year 5 D e p o s its of 8 of w it h d r a w a l.................................... 5 contracts to con rate fo r State b a n k s ................... Requirements (c ) fo r m to r e g u la t io n ......................... (c ) (a ) and ........................................ 8 8 ............................................................. (b ) S e c . 217.3— I n t e r e s t 7 p e n a lt y .......................................... (f) 5 e p o s it s 7 Tim e deposits payable after a spe (c ) 3 (e ) .............................................. (b ) 3 (c ) 7 ( a ) Tim e deposits payable on a specified 9 (c ) Percentage yields based on periods in excess o f one y e a r ................... 9 on savings d e p o s it s ..................... (d ) 6 6 (d ) Tim e or amount requirements . . . . 9 6 G race periods in computing interest (e ) Computation o f in te r e s t ................. (f) No (g ) Tim e piration o f n o t i c e ....................... deposits of foreign organizations ................................ [S e c . 21 7.7 — S u p p le m e n t , M a x im u m 6 Profit ................................................ 10 (g ) A ccu racy o f a d v e rtis in g ................. 10 Solicitation o f deposits fo r banks . . 10 (i) mental entities and international Penalty fo r early withdrawals . . . . (h ) 6 govern (e ) (f) interest after maturity o r ex 9 Negotiable orders o f withdrawal . . . 10 S t a t u t o r y A p p e n d i x ...................................... 11 R a t e s o f I n t e r e s t P a y a b le b y M e m b e r B a n k s o n T im e an d S a v in g s D e p o s its , is p rin ted separately.] REGULATION Q (12 CFR 217) A s amended effective December 6, 1978 IN T E R E S T O N D E P O S IT S * S E C T I O N 217.0— S C O P E O F P A R T ( a ) This Part is issued under authority o f pro visions o f section 19 o f the Federal Reserve A ct which, together with related provisions o f law, This Part relates to the payment o f de posits and interest thereon by mem ber banks o f the Federal Reserve System and not to the com putation and maintenance o f the reserves which m em ber banks are required to maintain against deposits. T h e rules concerning reserves o f member banks are contained in Part 204 o f this chapter. (c ) O n a certain date, specified in the instru deposit, or (2 ) A t the expiration o f a certain specified time not less than 30 days after the date o f the are cited in the Appendix. (b ) (1 ) ment, not less than 30 days after date o f the The provisions o f this Part do not apply to any deposit which is payable only at an office o f a m em ber bank located outside o f the States o f the U nited States and the District o f Colum bia. instrument, or (3 ) U p o n notice in writing which is actually required to be given not less than 30 days before the date o f repayment,1 and (4 ) In all cases only upon presentation and surrender o f the instrument. (d) Time deposits, open account. T he term “ time deposit, open account” means a deposit, other than a “ time certificate o f deposit” , with respect to which there is in force a written con tract with the depositor that neither the whole nor any part o f such deposit may be withdrawn, S E C T IO N 217.1— D E F I N I T I O N S (a ) Demand deposits. The term “any deposit which is payable on dem and”, hereinafter referred by check or otherwise, prior to the date o f matu rity, which shall be not less than 30 days after the date o f the deposit,2 or prior to the expira to as a “ demand deposit” , includes every deposit which is not a “time deposit” or “savings deposit” , as defined in this section. (b ) Time deposits. The term “ time deposits” means “time certificates o f deposit” and “time deposits, open account”, as defined in this section. (c) Time certificates of deposit. The term “ time certificate o f deposit” means a deposit evidenced by a negotiable or non-negotiable instrument which provides on its face that the amount o f such deposit is payable to bearer or to any speci fied person or to his order: * The text corresponds to the Code o f Federal Regula tions, Title 12, Chapter II, Part 217; cited as 12 C F R 217. The words “ this Part” , as used herein, mean Regulation Q. 1A deposit with respect to which the bank merely re serves the right to require notice o f not less than 30 days, before any withdrawal is made is not a “ time certificate o f deposit" within the meaning o f the above definition. 3 Deposits, such as Christmas club accounts and vaca tion club accounts, which are made under written con tracts providing that no withdrawal shall be made until a certain number o f periodic deposits have been made during a period o f not less than 3 months constitute “ time deposits, open account", even though some o f the deposits are made within 30 days from the end o f the period. REGULATION Q § 217.1 tion o f the period o f notice which must be given primarily fo r religious, philanthropic, charitable, b y the depositor in writing not less than 30 days educational, fraternal, or other similar purposes in advance o f withdrawal.3 and not operated fo r profit. Deposits in which Savings deposits. T h e (e) term “savings de any posit” means a deposit— (1 ) That consists interest is held by a corpo deposited to the tion operated fo r profit or not operated primarily credit o f or in which the entire beneficial interest fo r religious, philanthropic, charitable, educational, is held fraternal, or other similar purposes m ay not be by one corporation, operated or of beneficial ration, partnership, association o r other organiza more association, primarily funds fo r individuals, or other religious, or of a organization philanthropic, charitable, educational, fraternal, or other similar classified as deposits subject to negotiable orders o f withdrawal. purposes and not operated for profit; 4 o r that (f) Deposits as including certain promissory notes and other obligations. F o r the purposes o f consists o f funds deposited to the credit o f or this Part, the term “deposits” also includes any in which the entire beneficial interest is held by member bank’s liability on any promissory note, the United States, any State o f the United States, acknowledgment o f advance, due bill, or similar or any county, municipality, or political sub division thereof, the District o f Colum bia, Com m onwealth of Islands, Am erican subdivision deposited Samoa, thereof; to the Puerto or credit Rico, G uam , the or that consists of, or in the Virgin political of funds which any obligation (written or o ra l) that is issued or un dertaken by a member bank principally as a means o f obtaining funds to be used in its banking business, except any such obligation that: ( 1 ) Is issued to (o r undertaken with respect to) and held fo r the account o f ( i ) a bank or an beneficial interest is held by a corporation, asso institution the time deposits o f which are exempt ciation, from § 217.7 Pursuant to § 217.3(g), or (ii) the or other organization not qualifying above to the extent such funds do not exceed United $150,000 per such depositor at a mem ber bank; Governm ent Developm ent Bank fo r Puerto Rico; and States or an agency thereof, or the (2 ) Evidences an indebtedness arising from a ( 2 ) W ith respect to which the depositor is not transfer o f direct obligations of, or obligations required by the deposit contract but m ay at any that are fully guaranteed as to principal and in time be required by the bank to give notice in terest by, the United States or any agency thereof writing o f an intended withdrawal not less than that the bank is obligated to repurchase; 30 days before such withdrawal is m a d e 5 and which is not payable on a specified date or at the expiration o f a specified time after the date o f deposit. (3 ) In those States where banks are permitted to offer deposits subject to negotiable orders of (3 ) (i) Bears on its face, in bold-face type the following: “This obligation is not a deposit and is not insured by the Federal Deposit Insurance Cor* poration”; withdrawal, such deposits m ay be maintained if is subordinated to the claims o f depositors, is un such deposits consist o f funds deposited to the secured, and is ineligible as collateral fo r a loan credit o f or in which the entire beneficial interest by the issuing bank and also expressly states said is held by one or more individuals, or a corpo provisions on its face; has an original maturity o f ration, association, or other organization operated at least seven years, or, in the case o f an obliga tion or issue that provides fo r any type o f sched • A deposit with respect to which the bank merely re serves the right to require notice o f not less than 30 days before any withdrawal is made is not a “ time deposit, open account” , within the meaning o f the above definition. * Deposits in joint accounts o f two or more individuals may be classified as savings deposits if they meet the other requirements o f the above definition. Deposits o f a partnership operated fo r profit may also be classified as savings to the extent such deposits do not exceed $150,000 per partnership at a member bank. * The exercise by the bank o f its rights to require such notice shall not cause the deposit to cease to be a savings deposit. uled repayments of principal, has an average m aturity' o f at least seven y e a rs ' and provides that once any such repayment o f principal be gins, all scheduled repayments shall be made at least annually and the amount repaid in each •T h e “ average maturity” o f an obligation or issue re payable in scheduled periodic payments shall be the weighted average o f the maturities o f all such scheduled repayments. 1 In a serial issue the member bank may offer no note with maturity o f less than five years. REGULATION Q §§ 217.1-217.2— 217.3 year is no less than in the prior year; is issued This paragraph shall not, however, affect ( i ) any subject to a requirement that no repayment (other instrument issued before June 27, 1966, or (ii ) than a regularly scheduled repayment already ap any instrument that evidences proved by the appropriate Federal bank regula arising from a transfer o f assets under repurchase tory agency), including but not limited to a pay agreement issued before July 25, 1969. ment pursuant to acceleration o f maturity, may be made without the prior written approval o f the an indebtedness Multiple maturity time deposit. The term (g) “multiple maturity time deposit” means any time appropriate Federal bank regulatory agency; 8 is in deposit an amount o f at least $500, Except, That the ap option o n (1 ) propriate Federal bank regulatory that is payable at the depositor’s more than one date, whether on a agency m ay specified date or at the expiration o f a specified approve the issuance o f an obligation that is less time after the date o f deposit (e.g., a deposit pay than $500 if such lesser amount is necessary ( a ) able at the option o f the depositor either three to satisfy the preemptive rights o f shareholders in months or six months after the date o f deposit), the case o f a convertible debt obligation, (b ) to (2 ) maintain a ratable unit offering to holders o f pre drawal, or ( 3 ) with respect to which the under emptive rights in the case o f an obligation issued lying instrument or contract or any inform al un exclusively as part o f a unit including shares o f derstanding or agreement provides fo r automatic stock which are subject to such preemptive rights, renewal at maturity. or (c ) that is payable after written notice o f with to satisfy shareholders’ ratable claims in the case o f an obligation issued wholly or partially S E C T I O N 217.2— D E M A N D D E P O S IT S in exchange fo r shares o f voting stock or assets pursuant to a plan o f merger, consolidation, re (a) Interest prohibited. Except as provided by organization, or other transaction where the issuer section 19 o f the Federal Reserve Act, no member will acquire either a majority o f such shares o f bank o f the Federal Reserve System shall, directly voting stock or all or substantially all o f the assets or indirectly, by any device whatsoever, pay any o f the entity whose assets are being acquired; and interest on any demand deposit. has been approved by the appropriate Federal bank regulatory agency as an addition to the (b ) Meaning of interest. W ithin this Part, any payment to or fo r the account o f any depositor capital structure o f the issuing bank; or ( i ) meets as compensation fo r the use o f funds constituting all o f the requirements in the preceding clause a deposit shall be considered interest. except the maturity requirement or the require ment that scheduled repayments shall be in amounts at least equal to those made in a previous year; and with respect to which the appropriate S E C T IO N 217.3— I N T E R E S T O N T I M E A N D S A V I N G S D E P O S IT S Federal bank regulatory agency has determined that exigent circumstances require the issuance o f such obligations without regard to the provi sions o f this Part; o r (ii) was issued o r publicly offered before June 30, 1970, with an original Arises from a borrowing by a member bank from a dealer in securities, fo r one business day, o f proceeds o f a transfer o f deposit credit in a Federal Reserve Bank (o r other directly, by any device whatsoever, pay interest on any time or savings deposit at a rate in excess o f such applicable m aximum rate as the Board o f maturity o f more than two years; or (4) (a ) Maximum rate. Except as provided in this section, no member bank shall, directly or in immediately available fu n d s), commonly referred to as “F ed eral funds” , received by such dealer on the date o f the loan in connection with clearance o f securi ties transactions. ’ For the purposes o f this Part, the “ appropriate Fed eral bank regulatory agency” is the Comptroller o f the Currency in the case o f a national bank and the Board o f Governors in the case o f a State member bank. Governors o f the Federal Reserve System shall prescribe from time to time in § 217.7. In as certaining the rate o f interest paid, the effects o f compounding o f interest may be disregarded. (b ) Modification of contracts to conform to regulation. N o certificate o f deposit or other con tract shall be renewed or extended unless it be modified to conform to the provisions o f this Part, and every member bank shall take such action as may be necessary, as soon as possible con sistently with its contractual obligations, to bring all o f its outstanding certificates o f deposit or REGULATION Q § 217.3 other contracts into conformity with the provi deposit will thereafter again be subject to the sions o f this Part. contract or requirements applicable to such de (c) Member banks limited to maximum rate for State banks. T he rate o f interest paid by a member posit, the deposit will again constitute a time deposit or savings deposit, as the case may be, bank upon a time deposit or savings deposit shall after the date upon which such advice is received not in any case exceed ( 1 ) the applicable m axi by the bank. O n each certificate, passbook, or mum rate prescribed pursuant to the provisions other document representing a time deposit, the o f paragraph (a) o f this section, or (2) the appli bank shall have printed or stamped a conspicuous cable maximum rate authorized by law to be paid statement indicating that no interest will be paid upon such deposits b y State banks or trust com on the deposit after the maturity date or, in the panies organized under the laws o f the State in case o f a time deposit that is automatically re which such mem ber bank is located, whichever newable, a conspicuous statement indicating that may be less. the contract will be renewed automatically upon (d) Grace periods in computing interest on sav ings deposits. A member bank may pay interest on a savings deposit received during the first 10 calendar days of any calendar month at the applicable maximum rate prescribed pursuant to maturity, and indicating the terms of such renewal. Time deposits of foreign governmental en (g) tities and international organizations. Section 217.7 does not apply to the rate o f interest that paragraph ( a ) o f this section calculated from the may be paid by a member bank on a time deposit first day o f such calendar month until such de having a maturity o f 2 years or less and repre funds deposited and owned by (1 ) a posit is withdrawn or ceases to constitute a savings senting deposit under the provisions o f this Part, which foreign national government, or an agency o r in ever shall first occur; and a mem ber bank may strumentality thereof 9 engaged principally in ac pay interest on a savings deposit withdrawn dur tivities ing its last 3 business days o f any calendar month United States by governmental entities, ( 2 ) ending a regular quarterly or semiannual interest international entity o f which the United States is a period at the applicable maximum rate prescribed member, or ( 3 ) any other foreign, international, pursuant to paragraph or supranational entity specifically designated by (a ) o f this section cal culated to the end o f such calendar month. which are ordinarily perform ed in the an the Board as exempt from § 217.7. A ll certificates (e) Computation of interest. In the computation of deposit issued by mem ber banks to such enti o f simple daily interest, the time factor should be ties on which the contract rate o f interest exceeds expressed as a fraction in which the actual number the maximum prescribed under § 217.7 shall p ro o f days the funds earn interest is the numerator, vide that ( 1 ) in the event o f transfer, the date o f and the denominator is either 360, 365, or, in a transfer, attested to in writing by the transferor, leap year, 366. H owever, when a deposit matures shall appear on the certificate, and ( 2 ) the maxi in one month (o r multiples th ereof), the bank mum rate limitations o f § 217.7 in effect at the m ay use 30 days in the numerator date o f issuance o f the certificate shall apply to (o r corre sponding multiples th ereof). (f) N o interest after maturity or expiration of notice. A fte r the date o f maturity o f any time deposit, such deposit is a demand deposit, and no interest m ay be paid on such deposit for any the certificate fo r any period during which it is held by a person other than an entity exempt therefrom under the foregoing sentence.1 U p o n 0 the presentment o f such a certificate for payment, the bank may pay the holder the contract rate period subsequent to such date. A fte r the expira tion o f the period o f notice given with respect to the repayment o f any time deposit or savings deposit, such deposit is a demand deposit and no interest m ay be paid on such deposit fo r any period subsequent to the expiration o f such notice, except that, if the owner o f such deposit advise the bank in writing that the deposit will not be withdrawn pursuant to such notice or that the 9 Other than States, provinces, municipalities or other regional or local governmental units, or agencies or in strumentalities thereof. ' “ A new certificate not maturing prior to the maturity date o f the original certificate may be issued by the mem ber bank to the transferee, in which event the original must be retained by the bank. The new certificate may not provide fo r interest after the date o f transfer at a rate in excess o f the applicable maximum rate authorized by § 217.7 as o f the date o f issuance o f the original certifi cate. REGULATION Q §§ 217.3-217.4 o f interest on the deposit for the time that the maturity o f the deposit constitutes a payment o f certificate was actually owned by an entity so exempt. the time deposit before maturity. Provided fur ther, That Investment Certificates issued in negotiable form by a mem ber bank pursuant to S E C T I O N 217.4— P A Y M E N T O F T I M E subpart 3 o f § 217.7(b) m ay not be paid before D E P O S IT S B E F O R E M A T U R I T Y maturity. This provision does not prevent a mem ber bank from arranging the sale or purchase o f (a) Tim e deposits payable on a specified date. No member bank shall pay any time deposit, such a certificate prospective on behalf o f the holder or purchaser ( d ) o f this section. not prevent a mem ber bank from arranging the after a specified mem ber issued not be paid before maturity. This provision does payable A certificate which is payable on a specified date, before such deposits subpart. a specified date, except as provided in paragraph (b ) Tim e that of under bank may sale or purchase o f such a certificate on behalf o f time the holder or prospective purchaser o f a certificate deposit, which is payable at the expiration o f a issued under that subpart. A m em ber bank may certain period. No member bank shall pay any specified not, however, repurchase such certificates fo r its period has expired, except as provided in para ow n account. Provided further, That a time de graph ( d ) o f this section. posit may be paid before maturity without a re specified (c) Tim e notice. No period, before deposits payable member bank such after shall a pay specified any time duction o r forfeiture o f interest as prescribed by this paragraph in the following circumstances: deposit, with respect to which notice is required (1 ) W h ere a member bank pays all or a portion to be given a certain specified period before any o f a time deposit upon the death o f any ow ner o f withdrawal is made, until such required notice the time deposit fu n d s ;llR has been given and the specified period thereafter (2) W h ere a member bank pays all o r a por has expired, except as provided in paragraph ( d ) tion o f a time deposit representing funds con o f this section. tributed to an Individual Retirement Account or a a K eogh (H .R . 10) plan established pursuant to time deposit, or any portion thereof, is paid be 26 U .S .C . (I.R .C . 1954) § § 401, 408 when the (d ) Penalty fo r early withdrawals. W h ere fo re maturity, a mem ber bank may pay interest individual on the amount withdrawn at a rate not to exceed maintained attains age 59Vi fo r whose benefit the account is that currently prescribed in § 217.7 fo r a savings defined in 26 U .S .C . (I.R .C . 1954) § 72 (m )(7 ) or deposit: Provided, That the depositor shall forfeit thereafter; or or is disabled (as three months o f interest payable at such rate If, (3) W h ere a member bank pays that portion of however, the amount withdrawn has remained on a time deposit on which Federal deposit insurance deposit fo r three months or less, all interest shall has been lost as the result o f the merger o f two be forfeited. W h ere necessary to comply with the o r more Federally insured banks in which the requirements o f this paragraph, any interest al depositor previously maintained separate time de ready paid to or fo r the account o f the depositor posits, for a period o f one year from the date of shall be deducted from the amount requested to the merger. be w ith d raw n .1 A n y amendment o f a time de 1 posit contract that results in an increase in the rate o f interest paid o r in a reduction in the " T h e provisions o f this paragraph apply to all time deposit contracts entered into after July 5, 1973, and to all existing time deposit contracts that are extended or re newed (whether by automatic renewal or otherwise) after such date, and to all. time deposit contracts that are amended after such date so as to increase the rate o f interest paid. A ll contracts not subject to the provisions o f this paragraph shall be subject to the restrictions o f § 217.4(d) in effect prior to July 5, 1973, which permitted payment o f a time deposit before maturity only in an emergency where necessary to prevent great hardship to the depositor, and which required the forfeiture of accrued and unpaid interest for a period o f not less than 3 months on the amount withdrawn if an amount equal to the amount withdrawn had been on deposit for 3 months or longer, and the forfeiture o f all accrued and unpaid interest on the amount withdrawn if an amount equal to the amount withdrawn had been on deposit less than 3 months. ” • F o r the purposes o f this provision, an “ owner” o f time deposit funds is any individual who at the time o f his or her death has full legal and beneficial title to all or a portion o f such funds or, at the time o f his or her death, has beneficial title to all or a portion o f such funds and full power o f disposition and alienation with respect thereto. REGULATION Q §§ 217.4-217.5 U n d e r a time deposit agreement where subsequent o f withdrawal. I f a mem ber bank, without requir deposits reset the maturity o f the entire account, ing notice o f withdrawal, pays interest that has each deposit maintained in the account fo r at least accrued on a savings deposit during the preceding a period equal to the original maturity o f the de interest period, it shall, upon request and without posit may be regarded as having matured indi requiring such notice, pay interest that has ac vidually and been redeposited at intervals equal to crued during said period on the savings deposits such period. W h en a time deposit is payable only o f every other depositor. N o m em ber bank shall after notice, fo r funds on deposit fo r at least the change its practice with respect to the requiring notice period, the penalty fo r early withdrawal or waiving o f notice o f withdrawal o f savings shall be imposed fo r at least the notice period. deposits fo r the purpose of discriminating in (e) Disclosure of early withdrawal penalty. A t favor o f or against any depositor or depositors, the time a depositor enters into a time deposit and no such change o f practice shall be made contract with a m em ber bank, the bank shall p ro except pursuant to duly recorded action o f the vide a written statement o f the effect o f the penalty prescribed in paragraph (d ) o f this sec bank’s board o f directors or a properly authorized committee thereof. state clearly that the cus (b ) Loans on security o f savings deposits. I f it tomer has contracted to keep his funds on deposit is not the practice o f a mem ber bank to require tion, which shall ( 1 ) fo r the stated maturity, and (2 ) describe fully notice and clearly h o w such penalty provisions apply to restrictions are imposed by this Part upon loans of withdrawal of savings deposits, no time deposits in such bank, in the event the bank, by such bank to its depositors upon the security notwithstanding the contract provisions, permits o f such deposits. I f it is the practice o f a mem ber payment before maturity. Such statements shall be bank to require notice o f withdrawal o f a savings expressly called to the attention o f the customer. deposit, such bank m ay make loans to a depositor Written statements m ade with respect to negoti upon the security o f such deposit, but the rate o f able Investment Certificates issued by a member interest o n such loans shall b e not less than 1 per bank pursuant to subpart 3 o f § 2 1 7 .7 (b ) shall cent per annum in excess o f the rate o f interest state clearly that no payment before maturity will paid on such deposit. be permitted under any circumstances. Such state ments shall be expressly called to the attention o f (c) Manner of payment of savings deposits. ( 1 ) Subject to the provisions o f subparagraphs the customer. In addition, every negotiable Invest (2 ) ment Certificate shall state conspicuously on its may permit withdrawals to be m ade from a sav face that, “This time deposit cannot be paid prior ings deposit only through paym ent12 to the deposi to maturity.” tor himself (but not to any other person whether (f) Loans upon security of time deposits. A m em ber bank may make a loan to the depositor upon the security o f his time deposit provided and ( 3 ) o f this paragraph, a mem ber bank or not acting for the depositor), except (i) where the deposit is represented by a pass book, to any person presenting the p assbo o k ;1 2 that the rate o f interest on such loan shall be not ( i i ) to any executor, administrator, trustee, or less than 1 per cent per annum in excess o f the other fiduciary holding the savings deposit as part o f a fiduciary estate, or to a person, other than rate o f interest on the time deposit. the bank, holding a general pow er o f attorney granted by the depositor; (iii) to any person, including the bank, that S E C T I O N 217.5— W I T H D R A W A L O F S A V I N G S D E P O S IT S (a ) Requirements regarding notice of with drawal. W hether or not interest is paid, no mem b er bank shall require o r waive notice o f with draw al as to any amount or percentage o f the sav ings deposit o f any depositor unless it shall simi larly require o r w aive such notice as to the same has extended credit to the depositor on the secu rity o f the savings deposit, w here such payment is made in order to enable the creditor to realize upon such security; (i v ) pursuant to the order o f a court o f com petent jurisdiction; amount or percentage o f the savings deposits o f every other depositor which are subject to the same contractual provisions with respect to notice 1 Payment from a savings deposit or presentation o f a 3 passbook may be made over the counter, through the mails, or otherwise. REGULATION Q (v ) §§ 217.5-217.6 upon the death o f the depositor, to any withdrawal for such a deposit shall be entered person authorized by law to receive the deposit; in the passbook as soon as practicable after with (v i) interest paid to a third person pursuant to drawal is made. written instruction o r assignment by the depositor accepted by the bank, and placed on file therein; S E C T I O N 217.6— A D V E R T I S I N G or O F I N T E R E S T O N D E P O S IT S (v ii ) pursuant to nontransferable withdrawal orders o r authorizations received from a depositor E very advertisement, announcement, or solici b y a m em ber bank fo r the payment o f amounts tation relating to the interest paid on deposits in from such deposits to third parties, including the mem ber banks shall be governed by the following bank (except as prohibited by subparagraph 2), rules: periodically or otherwise. A n y such withdrawal (a) Annual rate of simple interest. Interest rates order or authorization that m ay be honored as a shall be stated in terms o f the annual rate o f withdrawal request fo r payment to a third party simple interest. In no case shall a rate be adver may, tised that is in excess o f the applicable maximum if so authorized by the third party, be honored as a transfer to an account o f such third party. A n y form fo r such withdrawal order or authorization shall contain language in boldface type o f reasonable size to the effect that it is not negotiable or transferable. (2) Notwithstanding (b ) Percentage yields based on one year. W here a percentage yield achieved by compounding in terest during one year is advertised, the annual rate o f simple interest shall be stated with equal sub prominence, together with a reference to the basis withdrawals o f compounding. N o mem ber bank shall advertise may be permitted by a member bank to be made a percentage yield based on the effect o f grace automatically or as a normal practice from a sav periods permitted in § 2 1 7 .3 (d ). paragraph (1 ) of this the rate for the particular deposit. provisions paragraph, of ings deposit that consists only o f funds in which the entire beneficial interest is held by one or more individuals through payment to the bank itself or through transfer o f credit to a demand deposit or other account pursuant to written authorization from the depositor to make such payments or transfers in order to cover checks or drafts draw n upon the bank or to maintain a specified balance in or to make periodic transfers to such accounts. In accordance with § 2 1 7 .1 (e) ( 2 ) o f this Part, a member bank must reserve the right to require the depositor to give notice in writing o f an intended withdrawal not less than 30 days before such withdrawal is made. Such notice shall be prominently disclosed and specifi cally brought to the depositor’s attention at the time the automatic transfer service is authorized. A m em ber bank m ay not require a depositor to (c) Percentage yields based on periods in excess of one year. N o advertisement shall include any indication o f a total percentage yield, compounded o r simple, based on a period in excess o f a year, or an average annual percentage yield achieved by compounding during a period in excess o f a year. (d ) Time or amount requirements. I f an adver tised rate is payable only on deposits that meet time or amount requirements, such requirements shall be clearly and conspicuously stated. W h ere the time requirement fo r an advertised rate is in excess o f a year, the required num ber o f years fo r the rate to apply shall be stated with equal prominence, together with an indication o f any lower rate or rates that will apply if the deposit is withdrawn at an earlier maturity. (e) Penalty for early withdrawals. A n y adver authorize such automatic transfer to be made tisement, from savings deposits. to interest paid by a mem ber bank on time de ( 3 ) A m em ber bank m ay permit depositors to maintain deposits subject to negotiable orders o f withdrawal where authorized by Federal law. (4 ) W h ere a savings deposit is evidenced by a passbook, every withdrawal m ade upon presenta announcement, or solicitation relating posits shall include clear and conspicuous notice that Federal law and regulation prohibit the bank from allowing payment o f a time deposit before maturity unless substantial interest is forfeited. Such notice m ay state that, tion o f the passbook shall be entered in the pass “Federal law and regulation prohibit the book at the time o f withdrawal, and every other payment o f a time deposit prior to maturity REGULATION Q §§ 217.6-217.7 unless three months o f the interest thereon shall advertise a percentage yield on any deposit is forfeited and interest on the amount with it solicits fo r a member bank that is not author drawn is reduced to the passbook rate.” ized to be paid and advertised by such bank. announce (i) Negotiable orders o f withdrawal. In addition ment, or solicitation made by television or radio, to compliance with the other paragraphs o f this the required notice o f penalty m ay be stated in a section, m em ber banks offering accounts subject W ith respect to any advertisement, form such as “Substantial interest penalty is re to negotiable orders o f withdrawal, to the extent quired fo r early withdrawal.” A n y advertisement, practicable, shall limit every advertisement, an announcement or solicitation relating to interest nouncement or solicitation made in any news paid by a mem ber bank on negotiable Investment paper, magazine, radio, television o r other media Certificates issued of to such facilities directed toward residents o f the § 2 1 7 .7 (b ) shall include clear and conspicuous States in which Federal law authorizes the issu notice that Federal law and regulation prohibit ance o f such accounts. A ll other advertisement, pursuant to subpart 3 the payment o f such certificate prior to maturity. (f) Profit. The term “profit” shall not be used in referring to interest paid on deposits. announcements and solicitations o f such accounts, including direct mailing, circulars, and notices, whether written or oral, to the extent practicable, (g) Accuracy of advertising. N o mem ber bank shall be directed only to persons residing or em shall make any advertisement, announcement, or ployed in the States in which Federal law author solicitation relating to the interest paid on deposits izes the issuance o f accounts subject to negotiable that is inaccurate or misleading or that misrep orders o f withdrawal resents its deposit contracts. customers o f member banks in those States on the (h) Solicitation of deposits for banks. A n y per and to persons w ho are effective date o f this amendment. son or organization that solicits deposits fo r a m em ber bank shall be bound by the rules con (S E C T IO N 217.7— M A X I M U M RATES OF tained in this section with respect to any adver IN T E R E S T P A Y A B L E B Y M E M B E R B A N K S tisement, announcement, or solicitation relating to ON such deposits. N o printed separately.) such person or organization T IM E AND S A V IN G S D E P O S IT S , is REGULATION Q STATUTORY APPENDIX S T A T U T O R Y A P P E N D IX agency, or officer o f the foregoing, as is incon Section 19 o f the Federal Reserve A c t provides in part as follow s: (a ) sistent with the provisions of this section as amended, is hereby repealed. [U.S.C., title 12, sec. 371a.] The Board is authorized fo r the purposes (j) The Board m ay from time to time, after o f this section to define the terms used in this consulting with the Board o f Directors o f the section, to determine what shall be deemed a Federal Deposit Insurance Corporation and the payment o f interest, to determine what types o f Federal H om e Loan Bank Board, prescribe rules obligations, whether issued directly by a member governing the payment and advertisement o f in bank or indirectly by an affiliate o f a member terest on bank o r by other means, and, regardless o f the use rates o f interest which may be paid by member deposits, including limitations o n the o f the proceeds, shall be deemed a deposit, and to banks on time and savings deposits. T h e Board prescribe such regulations as it may deem neces m ay prescribe different rate limitations fo r d if sary to effectuate the purposes o f this section and ferent classes o f deposits, fo r deposits o f different to prevent evasions thereof. amounts or with different maturities o r subject [U.S.C., title 12, sec. 461] to different conditions regarding withdrawal or *•* (i) No m em ber bank shall, directly or indi rectly, by any device whatsoever, pay any interest on any deposit which is payable on demand: Provided, That nothing herein contained shall be construed as prohibiting the payment o f interest in accordance with the terms o f any certificate o f deposit or other contract entered into in good faith which is in force on the date on which the bank becomes subject to the provisions o f this paragraph; but no such certificate o f deposit or other contract shall be renewed or extended un less it shall be modified to conform to this para graph, and every mem ber bank shall take such action as may be necessary to conform to this paragraph as soon as possible consistently with its contractual obligations: Provided further, That this paragraph shall not apply to any deposit o f such bank which is payable only at an office thereof located outside o f the States o f the United States and the District o f Colum bia: Provided repayment, according to the nature or location o f mem ber banks o r their depositors, or accord ing to such other reasonable bases as the Board may deem desirable in the public interest. N o mem ber bank shall pay any time deposit before its maturity except upon such conditions and in accordance with such rules and regulations as may be prescribed by the said Board, or waive any requirement o f notice before payment o f any savings deposits except as to all savings de posits having the same requirements: Provided, That the provisions o f this paragraph shall not apply to any deposit which is payable only at an office o f a mem ber bank located outside o f the States o f the United States and the District o f Colum bia. October D u rin g 15, commencing on 1962, and ending on October the period 15, 1968, the provisions o f this paragraph shall not apply to the rate o f interest which m ay be paid by m em ber banks on time deposits o f foreign further, That until the expiration o f two years governments, monetary and financial authorities after the date o f enactment o f the Banking A ct o f o f foreign governments when acting as such, or 1935 this paragraph shall not apply ( 1 ) to any international financial institutions o f which the deposit made by a savings bank as defined in sec United States is a member. tion 12B o f this Act, as amended, or by a mutual savings bank, or (2 ) to any deposit o f public funds made by or on behalf o f any State, county, school district, or other subdivision or municipal ity, or to any deposit o f trust funds if the pay ment o f interest with respect to such deposit o f public funds or o f trust funds is required by State law. So much o f existing law as requires the pay ment o f interest with respect to any funds de posited by the United States, by any Territory, District, or possession thereof (including the Phil ippine Islan ds), or by any public instrumentality, [U.S.C., title 12, sec. 371b. The first two sentences o f this paragraph are, in part, temporary. Unless section 7 o f the A ct o f September 21, 1966 (as amended by the A ct o f December 31, 1975) is modified, on December 15, 1978, such sentences will read as follows: “ The Board o f Governors o f the Federal Reserve System shall from time to time prescribe rules governing the payment and advertisement o f interest on deposits, including limitations on the rate o f interest which may be paid by member banks on time and savings deposits, and shall prescribe different rates fo r such payment on time and savings deposits having different maturi ties, or subject to different conditions respecting withdrawal or repayment, or subject to different conditions by reason o f different locations, or according to the varying discount rates o f member banks in the several Federal Reserve districts.” ]