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F ederal Reserve Bank




Circular No. 81-200
October 21, 1981

Clarification of Circular No. 81-181

Inquiries have been received concerning the explanation in Federal
Reserve Bank of Dallas Circular No. 81-181 of rules permitting the conversion
of existing time deposits to All Savers Certificates (ASCs) without the
imposition of an early withdrawal penalty. Specifically, member banks have
inquired about the rate of interest to be paid on ASCs resulting from
The Economic Recovery Tax Act of 1981 (P.L. 97-34) stipulates
that ASCs must have an annual investment yield equal to 70 percent of the
average investment yield for 52-week U.S. Treasury bills sold a t the most
recent auction preceding the week in which the ASC is issued. The ASC must
be issued a t a rate th at will result in the annual investment yield mandated
by the Act.
Circular No. 81-181 provides that one condition for converting an
existing time deposit to an ASC or any other deposit a t the same institution
without imposition of the early withdrawal penalty is that the rate paid on the
new deposit cannot exceed the lower of (a) the rate being paid on the existing
tim e deposit, or (b) the regulatory ceiling rate, if any, applicable to the new
deposit category a t the time of conversion. In the case of a conversion of an
existing time deposit to an ASC, the regulatory ceiling rate is the rate in
effect for the ASC at the time of conversion.
However, member banks may not offer ASCs which have an annual
yield less than that required by law.
If, to allow for a penalty-free
conversion, a certificate is issued a t a nominal rate which produces an annual
yield less than that required by law, it will not qualify as an ASC under the
regulations issued by the Depository Institutions Deregulation Committee.

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 (




Member banks which have issued All Savers Certificates having an
annual investment yield below the mandatory annual investment yield
effective on the date of the certificate's issuance should take appropriate
action to modify the certificates to conform with the regulations authorizing
the tax exempt All Savers C ertificates.
Questions regarding this Circular should be directed to the Legal
Department of this Bank, Ext. 6171.
Additional copies of this circular will be furnished upon request to
the Department of Communications, Financial and Community Affairs of this
Bank, Ext. 6289.
Sincerely yours,

William H. Wallace
First Vice President