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FEDERA L RESERVE BAN K OF DALLAS
DALLAS, TEXAS
75222
C i r c u l a r No. 81-70
A p r il 8 , 1981
TITLE 12 - CHAPTER XII - INTEREST ON DEPOSITS
C h a n g e s in th e E ffe c tiv e D a te s of 2 1 /2 Y e a r o r M ore
S m a ll S a v e r C e r tif ic a te s a n d 26-W eek M o n ey M a r k e t C e r tif ic a te s
P r o p o s a l s to P r o v i d e f o r th e P h a s e o u t of I n t e r e s t R ate C e ilin g s
TO ALL MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE D ISTRICT:
T h e D e p o s ito r y I n s tit u ti o n s D e r e g u la tio n C om m ittee h a s a n n o u n c e d two
p r o p o s a l s d e s i g n e d to im p le m e n t th e o r d e r l y p h a s e o u t of d e p o s it r a t e c e i li n g s fo r
f e d e r a l l y i n s u r e d d e p o s i t o r y i n s t i t u t i o n s . A ls o , th e C om m ittee m a d e fin a l a r u l e
to m a k e n e w c e ilin g r a t e s e s t a b l i s h e d f o r th e 2 6 -w e e k m o n e y m a r k e t c e r t if ic a te a n d
th e s m a ll s a v e r c e r tif ic a te e ffe c tiv e th e d a y fo llo w in g t h e i r a n n o u n c e m e n t. T h e
c h a n g e s a r e s u m m a r iz e d a s follow s:
1.
P r o p o s a l - T h e C om m ittee is r e q u e s t i n g co m m en t on a p r o p o s a l to r e m o v e
th e m ax im u m i n t e r e s t r a t e c e i li n g o n 2 1 /2 y e a r sm a ll s a v e r c e r t if ic a te s w h ic h
c u r r e n t l y is 12.00 p e r c e n t fo r t h r i f t in s ti tu t io n s a n d 11.75 p e r c e n t fo r c o m m e r
cia l b a n k s . T h e c e ilin g r a t e of i n t e r e s t p a y a b l e o n th e sm all s a v e r c e r tif ic a te
is tie d to th e a v e r a g e 2 1/2 y e a r y ie ld fo r U n ite d S ta te s T r e a s u r y s e c u r i t i e s
a s d e t e r m i n e d b i - w e e k l y b y th e U n ite d S ta te s T r e a s u r y . T h e c h a n g e w o u ld
a llo w th e i n t e r e s t r a t e c e i li n g to b e h i g h e r w h e n th e a v e r a g e y ie ld on 2 1/2
y e a r T r e a s u r y s e c u r i t i e s e x c e e d s 12.00 p e r c e n t . T h e m inim um i n t e r e s t r a t e
c e ilin g on sm all s a v e r c e r t i f i c a t e s , c u r r e n t l y 9 .5 0 p e r c e n t fo r t h r i f t i n s t i t u
tio n s a n d 9 .2 5 p e r c e n t f o r c o m m e rc ia l b a n k s , w o u ld n o t b e a ffe c te d b y th e
p r o p o s a l . D e p o s ito r y i n s t i t u t i o n s w o u ld c o n tin u e to b e a b le to p a y i n t e r e s t at
r a t e s lo w e r th a n th e c e ilin g m a x im u m . T h e C om m ittee h a s a s k e d fo r com m ent
on th is p r o p o s a l b y M ay 1, 1981 a n d is p a r t i c u l a r l y i n t e r e s t e d in co m m en ts
r e g a r d i n g th e effect t h i s a c tio n m ay h a v e on th e flow of f u n d s to d e p o s it o r y
i n s t i t u t i o n s , on th e e a r n i n g s p o s itio n of i n s t i t u t i o n s , a n d on th e r a t e s of r e
t u r n a v a i la b l e to d e p o s i t o r s .
2.
P r o p o s a l - T h e C om m ittee h a s a s k e d f o r co m m en t on a p r o p o s a l to im p le m e n t
th e p h a s e o u t of d e p o s it r a t e c e i l i n g s b y e s t a b l i s h i n g a s c h e d u l e fo r e lim in a tin g
r a t e c e i li n g s b a s e d o n th e l e n g t h of m a tu r it y of d e p o s i t s . T h e C om m ittee p r o
p o s e s to im p le m e n t th is a c tio n a c c o r d i n g to th e fo llo w in g s c h e d u le :
B a n k s a n d o t h e r s a r e e n c o u r a g e d to use th e fo llo w in g in c o m in g W A T S n u m b e r s in c o n ta c tin g th is Bank:
1-800-442-7140 (in tr a s t a te ) a n d 1-800-527-9200 (in te rs ta te ). F o r c a lls p la c e d lo cally, p l e a s e u s e 651 plus the
e x te n s io n referred to ab ove.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
-2M a tu r ity of D e p o s its f o r W hich
R ate C e i lin g s Would b e E lim in a te d
Date
J u l y 1,
J u l y 1,
J u l y 1,
J u l y 1,
J u l y 1,
A p r il 1,
1981
1982
1983
1984
1985
1986
5 y e a r s o r m o re
4 to 5 y e a r s
2 to 4 y e a r s
1 to 2 y e a r s
6 m o n th s to 1 y e a r
no c e i li n g s ( a s r e
T h e C om m ittee w ill a lso c o n s i d e r co m m en t c o n c e r n in g d e r e g u l a ti o n b y m e a n s
of i n d e x i n g c e ilin g r a t e s to m a r k e t r a t e s a c c o r d i n g to t h i s s c h e d u l e . T h e C om m ittee
a s k e d f o r co m m en t b y M ay 1, 1981, r e g a r d i n g th i s p r o p o s a l .
3.
F in a l R u le - E ffec tiv e A p r il 7, 1981, th e C om m ittee h a s a m e n d e d i t s r u l e s to
r e d u c e th e p e r i o d b e tw e e n th e a n n o u n c e m e n t a n d th e e ffec tiv e d a te of th e c e ilin g
r a t e s of i n t e r e s t p a y a b l e on th e 2 6 -w e e k m o n e y m a r k e t c e r t if ic a te (MMC) a n d on
th e 2 1/2 y e a r o r m o re sm a ll s a v e r c e r t if ic a te (S SC ) . U n d e r th e r e v i s e d r u l e s ,
th e c e ilin g r a t e s of i n t e r e s t p a y a b l e o n MMCs a n d S S C s w ill b e c o m e e ffe c tiv e on
th e d a y a f t e r th e y a r e a n n o u n c e d . C e ilin g r a t e s fo r s u c h d e p o s i t s n o r m a lly a r e
a n n o u n c e d o n M o nd ay a n d , t h u s , n o r m a lly w ill b e e ffe c tiv e on T u e s d a y r a t h e r
th a n on T h u r s d a y a s u n d e r th e p r e s e n t r u l e s . T h e r a t e a n n o u n c e d on M o n d a y ,
A p r il 6, fo r th e MMC, w ill b eco m e e ffe c tiv e T u e s d a y , A p r il 7, u n d e r th e n ew
r u l e . T h e r a t e a n n o u n c e d f o r th e SSC o n M o n d a y , A p r il 13, w ill b e e ffe c tiv e
on T u e s d a y , A p r il 14, u n d e r th e n e w r u l e . A ll r a t e s s u b s e q u e n t l y a n n o u n c e d
for t h e MMC o r th e SSC w ill b e e ffe c tiv e th e d a y a f t e r a n n o u n c e m e n t. T h e Com
m itte e to o k t h i s a c tio n to li n k th e r a t e s on th e s e d e p o s its m o re c lo s e ly to m a r k e t
r a t e s a n d h a s s a i d it w o u ld r e c o n s i d e r th e m a tte r if s e v e r e o p e r a tio n a l p r o b le m s
em erg e.
E n c lo s e d a r e c o p ie s of a p r e s s r e l e a s e a n d F e d e r a l R e g i s t e r n o tic e w h ic h
s h o u ld b e k e p t b y m e m b e r b a n k s in th e R e g u la tio n Q s e c tio n of t h e i r R e g u la tio n s
b in d e rs.
Q u e s tio n s c o n c e r n i n g th e a c tio n s ta k e n s h o u ld b e d i r e c t e d to th e C o n s u m e r
A f fa irs s e c tio n of th e B a n k S u p e r v i s i o n a n d R e g u la tio n s D e p a r tm e n t, E x t. 6171.
S in c e re ly y o u rs ,
W illiam H . W allace
F i r s t V ice P r e s i d e n t
E n c lo su re s
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE PRESS RELEASE
COMPTROLLER OF THE CURRENCY
FEDERAL RESERVE BOARD
FEDERAL DEPOSIT INSURANCE CORPORATION
NATIONAL CREDIT UNION ADMINISTRATION
FEDERAL HOME LOAN BANK BOARD
TREASURY DEPARTMENT
For immediate release
March 31, 1981
The Depository Institutions Deregulation Committee, established by Congress
to bring about an orderly phase-out of interest rate ceilings on deposits, proposed
taking two steps in that direction at its meeting March 26.
The Coiranittee requested comment by May 1 on the two following proposals:
1-
To remove the present 12 and 11 3/4 percent cap on the maximum
interest rate ceiling that applies to Small Saver Certificates
offered by thrift institutions and banks respectively. The
Small Saver Certificate is a certificate of deposit with a
maturity of 2 1/2 years or more. The rate ceiling on this cate
gory would continue to be tied to the 2 1/2 year yield on U.S.
Treasury securities.
2.
To establish the following schedule for deregulating deposit
rate ceilings generally, by eliminating rate ceilings on
deposits of certain maturities:
July 1 , 1981
July 1 , 1982
July 1 , 1983
July 1 , 1984
July 1 , 1985
April 1 , 1986
Deposits with maturities
of five years or more;
Deposits with maturities
of four to five years.;
Deposits with maturities
of two to four years;
Deposits with maturities
of one to two years;
Deposits with maturities
of six months to one year;
Elimination of all remaining
ceilings (as required by law).
The Committee said it wou^d also consider comment concerning deregulation
by means of indexing ceiling rates to market rates according to this schedule.
Subjects on which the Committee would particularly like to receive comment
are listed on
Pages Three and Six of the attached notice of those proposals.
In another action the Committee amended it rules to make new ceiling rates
established for the six-month Money Market Certificate and the Small Saver Certificate
(OVER)
-2effective the day following their announcement.
At present,
there is normally a two-day
delay (from announcement on Monday to the effective date on Thursday).
This will work as follows:
The rates announced Monday, March 30,
for both the Money Market Certificate and
the Small Saver Certificate remained subject to the existing
rule and become effective
on Thursday, April 2.
The rate announced on Monday, April 6, for the MMC, will become effective
Tuesday, April 7, under the new rule.
The rate announced (on the bi-weekly schedule of announcements of SSC rates)
for the SSC on Monday, April 13, will be effective on Tuesday, April 14, under the new
rule.
All rates subsequently announced for the MMC or the SSC will be effective the
day after announcement.
The Committee took this action to link the rates on these deposits more closely
to market rates.
emerged.
It said it would reconsider the matter if severe operational problems
The Committee acted after consideration of comment received on proposals,
announced last December, for changes in the Committee's rules regarding the
effective date of newly announced ceiling rates for the MMC and the SSC.
The comment
received is summarized in the attached notice of the Committee's action.
The Committee considered but took no action on proposals before it relating to
penalty-free early withdrawal of funds from time deposits in the event of the bankruptcy
of the depositor, the Committee's rule regarding the phase-out of finders fees and the
ceiling rates on regular savings accounts and interest bearing transaction accounts.
The Committee elected Secretary of the Treasury Donald T. Regan to
succeed Federal Reserve Board Chairman Paul A. Volcker as Chairman of DIDC.
The members
of the Committee are the heads of the agencies listed at the top of Page One.
The Committee will announce the date of its next meeting at a later time.
Attachment
TITLE 12— BANKS AND BANKING
CHAPTER XII— DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
[Docket No. D-0016]
PART 1204— INTEREST ON DEPOSITS
Effective Date of Ceiling Rates on MMCs and SSCs
AGENCY:
Depository Institutions Deregulation Committee.
ACTION:
Final rules.
SUMMARY: The Depository Institutions Deregulation Committee ("Committee”)
has amended its rules to reduce the period between the announcement
and the effective date of the ceiling rates of interest payable on the
26-week money market certificate (MMC) and on the 2-1/2 year or more
small saver certificate (SSC). Under the revised rules, the ceiling
rates of interest payable on MMCs and SSCs will become effective on
the day after they are announced. Ceiling rates for such deposits nor
mally are announced on Monday and, thus, normally will be effective
on Tuesday rather than on Thursday as under the present rules. This
action was taken by the Committee in order to more closely link the
ceiling rates of interest payable on MMCs and SSCs with current market
rates.
EFFECTIVE DATE:
April 7, 1981.
FOR FURTHER INFORMATION CONTACT: F. Douglas Birdzell, Counsel, Federal
Deposit Insurance Corporation (202/389-4261), Paul S. Pilecki, Senior
Attorney, Board of Governors of the Federal Reserve System (202/452
3281), Allan Schott, Attorney-Advisor, Treasury Department (202/566
6798), Rebecca Laird, Senior Associate General Counsel, Federal Home
Loan Bank Board (202/377-6446), or David Ansell, Attorney, Office of
the Comptroller of the Currency (202/447-1880).
SUPPLEMENTARY INFORMATION: The ceiling rate of interest payable on
MMCs is tied to the discount rate (auction average) on the most recently
issued 26-week United States Treasury bills. Such bills normally are
auctioned on Monday and, under current rules, the ceiling rate of in
terest based on the discount rate (auction average) is effective on
the following Thursday, the day on which the Treasury bills normally
are issued. This ceiling rate is effective until the next issuance
of 26-week United States Treasury bills. The ceiling rate of interest
payable on SSCs is tied to the average 2-1/2 year yield for United States
Treasury securities as determined bi-weekly by the United States Treasury.
- 2 Such average yield normally is announced by Treasury on Monday (based
on the average 2-1/2 year yield for the five business days ending on
the day of announcement) and, under current rules, the ceiling rates
based on their average 2-1/2 year yield are effective for a two-week
period beginning on the following Thursday.
On December 19, 1980, the Committee issued for public comment
proposed rules under which the ceiling rates announced on Monday would
be effective for new MMCs or SSCs issued beginning on the following
Tuesday or Wednesday rather than on the following Thursday (45 Fed.
Reg. 85059 (1980)). Over 400 comments from the public, including de
pository institutions, individuals, trade associations, and federal
instrumentalities, were received by the Committee on the proposal.
Comments of a majority of depository institutions and trade associations
favored changing the Thursday date to either Tuesday or Wednesday, while
other commentators favored retention of the Thursday effective date.
Those favoring a change in the effective date cited the potential for
decreasing earnings pressures on and smoothing deposit flows of finan
cial institutions as the primary benefits of such a change. Comments
in favor of retention of the Thursday date generally viewed the proposal
as having potential operational problems and as disadvantageous to de
positors.
After consideration of all of the comments on the proposal,
the Committee has determined to change the effective date of the ceiling
rate of interest on MMCs and SSCs from Thursday to the day after the
new ceiling rates are announced. In this regard, the new ceiling rates
on MMCs and SSCs normally are announced on Monday and, therefore, such
rates will be effective on Tuesday. When a holiday occurs on Monday,
the new ceiling rates are announced on Friday. In those instances,
the new ceiling rates will become effective on Saturday. In all cases,
the ceiling rates will remain in effect from the day after the announce
ment of the ceiling rate until the end of the day that a new ceiling
rate is announced for the particular category of deposit. As in the
past, the ceiling rate applicable to outstanding deposits will not change
during the life of the deposit. This action is effective for the new
ceiling rate for MMCs to be announced on April 6, 1981, and for the
ceiling rate to be announced for SSCs on April 13, 1981.
The Committee believes that this action will benefit depository
institutions by more closely linking the ceiling rates payable on MMCs
and SSCs with current market rates, thereby smoothing deposit flows
among depository institutions. In view of the comments received on
the proposal, the Committee believes that the change should not present
operational difficulties for institutions. However, the Committee noted
that if the change presents unanticipated operational difficulties for
depository institutions, it might reconsider the amendment at a future
date. In order to provide depositors with a return on their funds invested
in MMCs and SSCs that is more closely aligned to current market rates
as soon as possible, the Committee finds that good cause exists for
making this action effective in less than 30 days.
- 3 -
Pursuant to its authority under Title II of Public Law
96
221, 94 Stat. 142 (12 U.S.C. S 3501 et seq.), to prescribe rules govern
ing the payment of interest and dividends on deposits of federally in
sured commercial banks, savings and loan associations, and mutual savings
banks, effective April 7, 1981, the Committee amends Part 1204— Interest
on Deposits (12 CFR Part 1204) as follows:
1.
S 1204.104 —
Section 104 is revised to read as follows:
26-Week Money Market Time Deposits of Less than $100,000.
Commercial banks, mutual savings banks, and savings and loan
associations may pay interest on any nonnegotiable time deposit of $10,000
or more, with a maturity of 26 weeks at a rate not to exceed the rates
set forth below. Rounding any rate to the next higher rate is not per
mitted and interest may not be compounded during the term of this deposit.
Rate established and announced (auction
average on a discount basis) for U.S.
Treasury bills with maturities of 26 weeks
at the auction held immediately prior to
the date of deposit ("Bill Rate")
Maximum per cent
Commercial Banks
7.50 per cent or below
Above 7.50 per cent
7.75
Bill Rate plus onequarter of one per cent
Mutual Savings Banks and Savings
and Loan Associations
7.25 per cent or below
Above 7.25 per cent, but below
8.50 per cent
7.75
Bill Rate plus onehalf of one per cent
8.50 per cent, but below 8.75
per cent
8.75 per cent or above
Bill Rate plus onequarter of one per cent
4 -
2.
S 1204.106 —
Section 106 is revised to read as follows:
Time Deposits of Less Than $100,000 With Maturities of
2-1/2 Years or More.
(a) A commercial bank may pay interest on any nonnegotiable
time deposit with a maturity of 2-1/2 years or more at a rate not to
exceed the higher of one-quarter of one per cent below the average 2
1/2 year yield for United States Treasury securities as determined and
announced by the United States Department of the Treasury immediately
prior to the date of deposit, or 9.25 per cent. Such announcement is
made by the United States Department of the Treasury every two weeks.
The average 2-1/2 year yield will be rounded by the United States De
partment of the Treasury to the nearest 5 basis points. The rate paid
on any such deposit cannot exceed the ceiling rate in effect on the
date of deposit. In no event shall the rate of interest paid exceed
11.75 per cent, except as provided in 12 CFR 217.7(g) and in 12 CFR
329.6(b)(6).
(b) A mutual savings bank or savings and loan association
may pay interest on any nonnegotiable time deposit with a maturity of
2-1/2 years or more at a rate not to exceed the higher of the average
2-1/2 year yield for United States Treasury securities as determined
and announced by the United States Department of the Treasury immedi
ately prior to the date of deposit, or 9.50 per cent. Such announcement
is made by the United States Department of the Treasury every two weeks.
The average 2-1/2 year yield will be rounded by the United States De
partment of the Treasury to the nearest 5 basis points. The rate paid
on any such deposit cannot exceed the ceiling rate in effect on the
date of deposit. In no event shall the rate of interest paid exceed
12.00 per cent.
By order of the Committee, March 31, 1981.
(Signed)
Normand R. V. Bernard
Normand R. V. Bernard
Executive Secretary of the Board
[SEAL}
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
[12 CFR Part 1204]
(Docket No. D-0019)
NOTICE OF PROPOSED RULEMAKING
Deregulation of Deposit Rate Ceilings
AGENCY:
Depository Institutions Deregulation Committee.
ACTION:
Proposed rulemaking.
SUMMARY: The Depository Institutions Deregulation Committee ("Committee")
is requesting public comment on two proposed actions: (1) removal of
the maximum interest rate ceilings ("caps") on 2-1/2 year or more small
saver certificates (SSCs) while continuing to index the interest rate
limitation on SSCs to the 2-1/2 year yield on U. S. Treasury securities,
and (2) establishment of a schedule for which rate ceilings on deposits
would be gradually deregulated starting with longer maturities by elimina
ting such ceilings or, alternatively, by indexing interest rate ceilings
to a market rate. The proposals are intended as steps in accomplishing
the Committee's objective of an orderly phase-out and ultimate elimina
tion of deposit interest rate ceilings.
DATES:
Comments must be received by May 1, 1981.
ADDRESS: Interested parties are invited to submit written data, views,
or arguments regarding the proposed rules to Normand R. V. Bernard,
Executive Secretary, Federal Reserve Building, 20th Street and Constitution
Avenue, N. W., Washington, D. C. 20551. All material submitted should
include the Docket Number D-0019. Such material will be made available
for inspection and copying upon request except as provided in Section 1202.5
of the Committee's Rules Regarding Availability of Information (12 CFR
S 1202.5).
FOR FURTHER INFORMATION CONTACT: Paul S. Pilecki, Senior Attorney,
Board of Governors of the Federal Reserve System (202/452-3281), F.
Douglas Birdzell, Counsel, Federal Deposit Insurance Corporation (202/389
4261), Allan Schott, Attorney-Advisor. Department of the Treasury (202/566
6798), Rebecca Laird, Senior Associate General Counsel, Federal Hone
Loan Bank Board (202/377-6446), David Ansell, Attorney, Office of the
Comptroller of the Currency (202/447-1880), or Robert H. Dugger, Director,
Office of Policy Analysis, National Credit Union Administration Board
(202/357-1090).
- 2 -
SUPPLEMENTARY INFORMATION: The Depository Institutions Deregulation
Act of 1980 (Title II of P. L. 96-221; 12 U.S.C. SS 3501 et seq.)
("Act")
was enacted to provide for the orderly
phase-out and the ultimateelimina
tion of the limitations on the maximum
rates of interest and dividends
that may be paid on deposit accounts by depository institutions.
In
adopting the Act, the Congress determined that rate ceilings have:
(1) discouraged savings; (2) created inequities for depositors; (3)
impeded competition among depository institutions; and (4) not provided
an even flow of funds for hone mortgage lending. The Congress also
found that all depositors, particularly those with modest savings, are
entitled to receive a market rate-of-return as soon as it is economically
feasible for institutions to pay such rates.
Under the Act, authority to administer deposit rate ceilings
and to structure the phase~out of such ceilings has been given to the
Committee. The Act also provides that the Committee can phase out rate
ceilings by any or all of the following methods:
(1)
gradually increase ceilings applicable to all account
categories (however when increasing rates on all exist
ing accounts, the DIDC may not exceed market rates);
(2)
complete elimination of limitations applicable to par
ticular account categories (both new and existing):
(3)
creation of new account categories not subject to limits
or with limits set at current market rates;
(4)
by any combination of the above methods; and
(5)
by any other method.
In accordance with its responsibilities, the Committee is
requesting public comment on two proposals that are intended to meet
the objective of the Act. The first proposal is designed to further
deregulation in the short run by removing the maximum interest rate
ceilings ("caps") on 2-1/2 year or more small saver certificates (SSCs).
An interest rate limitation would continue to apply to SSCs; the ceiling
normally would be determined by the 2-1/2 year yield on U. S. Treasury
securities. The second proposal is a longer-term plan of deregulation
under which deposit interest rate ceilings would be gradually deregulated
starting with longer maturities by eliminating the ceilings or, alternatively,
by indexing interest rate ceilings to a market rate. The Committee
also is interested in receiving comments on other plans of deregulation
of interest rate limitations. Comment is reqested by May 1, 1981.
3 Removal of the Cap on SSCs
The ceiling rate of interest payable on the SSC is tied to
the average 2-1/2 year yield for United States Treasury securities as
determined bi-weekly by the United States Treasury. Thrift institutions
may pay interest on SSCs at the 2-1/2 year yield announced prior to
the date of deposit and commercial banks may pay interest at a rate
25 basis points lower.
On February 27, 1980, prior to the establishment of the Committee,
the Federal regulatory agencies announced the establishment of a temporary
maximum on the SSC ceiling of 12 per cent for insured savings and loan
associations and mutual savings banks and 11.75 per cent for Federally
insured commercial banks. This action was viewed as necessary because
the agencies believed that the sudden increase in ceilings, which other
wise would have occurred in March 1980, would have been disruptive to
many financial institutions, particularly those holding a high proportion
of long-term fixed-rate loans. The caps have been binding continuously
since November 1980. Absent the cap, the interest limitation on SSCs
for the period March 19 through April 1 would be 13.55 per cent for
thrift institutions and 13.30 per cent for commercial banks.
There also is a minimum interest rate ceiling on SSCs of 9.50
per cent for thrift institutions and 9.25 per cent for commercial banks,
although depository institutions may pay interest at rates lower than
the ceiling. The minimum interest rate ceiling, which was established
effective June 2, 1980, would not be affected by the proposal.
The Committee believes that removing the cap on the SSC interest
rate ceiling would provide a higher return to savers as well as give
depository institutions flexibility in choosing their own liability
structures. The more market sensitive overall yield that could be offered
could improve the competitive position of depository institutions visa-vis nondeposit alternatives. Moreover, to the extent that institutions
would be able to attract longer-term deposits, the flow of funds into
the mortgage markets could be improved.
Accordingly, the Committee requests views from the public
on a proposal to remove the maximum interest rate ceiling on SSCs of
12 per cent for thrift institutions and 11.75 per cent for commercial
banks so that the interest rate limitation could be higher when the
average yield on 2-1/2 year Treasury securities exceeds 12 per cent.
In particular, the Committee is interested in comments on the effect
that this action is likely to have on the flow of funds to depository
institutions, on the earnings position of institutions, and on the ratesof-return available to depositors.
- 4 Deregulation of Deposit Rate
Ceilings by Maturity
Pursuant to its responsibility to phase out deposit rate ceil
ings, the Committee is considering a proposal to deregulate such ceilings
by maturity of deposit. Under this proposal, the Committee would announce
a schedule for authorizing new deposit categories with no ceilings s*>' 't
ing with longer maturity deposits. As an alternative, a schedule of
new deposit categories with ceilings indexed to market rates could be
established. If indexed ceilings were adopted they could be established
with or without a differential between commercial banks and thrift in
stitutions. In implementing any deregulation plan, the Committee is
required to take into account whether economic conditions warrant such
action. In this regard, any action under a plan could be accelerated
or delayed depending upon the ability of financial institutions to pay
market rates as suggested by the schedule. The Committee proposesto
implement this action according to the following schedule:
Maturity of deposits for which
rate ceilings would be eliminted
Date
July 1, 1981
July 1, 1982
July 1, 1983
July 1, 1984
July 1, 1985
April 1, 1986
5 years or more
4 to 5 years
2 to 4 years
1 to 2 years
6 months to 1 year
no ceilings (as required by statute)
The table below presents the existing time deposit interest
rate ceilings to facilitate comparisons of the proposed program to the
current ceiling rate structure.
If a phased indexing of ceilings were used, the ceilings at
thrifts and commercial banks could be tied to the yields on U. S. Treasury
securities of comparable maturities. Under this approach, ceilings
on longer-maturity deposits could be below the current SSC ceiling (even
with the caps) if the U. S. Treasury yield curve were downward sloping.
To avoid setting ceilings that would be lower than those possible under
current regulations, public comment also is requested on tying the ceil
ings on longer-term deposits to the rates on comparable maturity Treasury
securities or the SSC ceilings, which ever was greater. In any event,
were the cap to be maintained on the SSC it would not have to apply
to the "deregulated" instruments.
The Committee believes that the development of its intentions
regarding the deregulation of interest rate ceilings is desirable in
order to facilitate planning by depository institutions. The approach
- 5 CURRENT MAXIMUM INTEREST RATES PAYABLE ON TIME DEPOSITS
(per cent)
Type and maturity
of deposit
Commercial
banks
S&Ls and MSBs
Fixed Ceiling Time
Deposits
14-89 days
90 days-1 year
1-2 1/2 years,.
2 1/2-4 y^arsr-'
4-6 years^/
6-8 years-'
8 years or more^
y6
5-1/4
5-3/4
6
6- 1/2
7-1/4
7-1/2
7-3/4
6 1/2
6-3/4
7-1/2
7-/4
8
-
Issued to government units
(all maturities)
8
IRA/Keogh (3 years or more)
8
Variable-Ceiling Time Deposits
26-week MMCs
2-1/2 year or more SSC
1/
1/
3/
1/
i/
No separate account category.
2/ Such ceilings presently are superseded by the minimum interest rate ceil
ings on the SSC of 9.50 per cent for thrift institutions and 9.25 per cent
for commercial banks (see fn. 4).
3/ Effective for all 26-week MMCs issued beginning June 5, 1981,
the interest rate ceilings will be determined by the discount rate
(auction average) of the most recently issued six-month Treasury bills as
follows:
Bill rate
8.75 and above
8.50 to 8.75
7.50 to 8.50
7.25 to 7.50
Below 7.25
Commercial bank ceiling
bill rate + 1/4 per cent
bill rate + 1/4 per cent
bill rate + 1/4 per cent
7.75
7.75
Thrift ceiling
bill rate + 1/4
9.00
bill rate + 1/2
bill rate + 1/2
7.75
per cent
per cent
per cent
~
4/ Effective for all SSCs with maturities of 2-1/2 years or more issued be
ginning June 2f 1980, the ceiling rates of interest will be determined by
the 2-1/2-year Treasury yield as follows:
Treasury yield
12.00 and above
9.50 to 12.00
Commercial bank ceiling
11.75
Treasury yield less
Thrift ceiling
12.00
Treasury yield
Below 9.50
9 . k 4 P*1 cent
9.50
- 6 set forth above addresses the issue of providing a market rate-of-return
to savers and also allows depository institutions, particularly thrift
institutions, time to adjust to an environment of deregulated deposit
rate ceilings. Although the asset powers of thrifts have been expanded,
it will be a number of years before their asset portfolios are affected
materially. In the initial stages of the phase-out savers would be
encouraged to place funds in longer-term accounts, which could help
correct the imbalance of asset and liability maturities at thrift in
stitutions. In addition, to the extent that longer-term deposits are
acquired, institutions may be more willing to channel the funds into
the housing market.
The Committee is interested in receiving comments on all aspects
of this proposal, including other approaches to deregulation. However,
it is particularly interested in receiving comment on the following
issues:
1. The desirability of eliminating ceilings versus establish
ing indexed ceiling rates.
2. The appropriateness of the phase-out schedule in view
of the structure of assets and liabilities at depository institutions.
3. The impact of the proposal on the flow of funds to depository
institutions.
4. The implications of the proposal forprovidingdepositors
an attractive
rate of return
on their
deposits.
5. The impact of the proposal on the earnings of depository
institutions.
of
6. The interrelationship of this proposal with the concept
removal of
the cap on the
SSC.
7. Other problems or benefits that would bederived
from
the establishment of a schedule for phasing out interest rate ceilings.
8.
Other suggestions related to implementing a plan of deregulation.
In view of the potential benefits that could be derived from
these proposed actions on the part of both depository institutions and
their customers, the Committee has determined that it is appropriate
to provide a thirty-day comment period on this matter. Accordingly,
comments on these proposals should be submitted by May 1, 1981.
By order of the Camnittee, March 31( 1981.
(Signed)
Moraand R. V. Bernard
Normand R. V. Bernard
Executive Secretary of the Comaittee
[SEAL]
@FedFRASER