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FEDERAL RESERVE B A N K
OF MEW YORK
March 26,
[Circular No. 1986
10,018 1
AMENDMENTS TO REGULATIONS D AND Q
To All Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:
The following statement has been issued by the Board of Governors of the Federal Reserve System:
The Federal Reserve Board has issued final amendments to its Regulations D (Reserve Requirements of Depository
Institutions) and Q (Interest on Deposits) that preserve the current treatment of money market deposit accounts (MMDAs)
and revise minimum penalties for early withdrawal of certain deposits.
In 1980 Congress passed the Depository Institutions Deregulation and Monetary Control Act which called for the
orderly phase-out and ultimate elimination of interest rate ceilings on all deposit accounts, except for demand deposits,
under the direction of the Depository Institutions Deregulation Committee (DIDC). Under present law, the DIDC termi
nates and all interest rate ceiling authority expires March 31, 1986, as does the authority to require early withdrawal
penalties under Regulation Q and the explicit mandate to offer MMDAs.
The final amendments to Regulations D and Q adapt to the expiration of DIDC authority by continuing to exempt
deposits with the existing withdrawal and transaction features of savings and MMDAs from transaction account reserve
requirements and from the prohibition o f interest on demand deposits. That is, savings deposits and MMDAs will continue
to qualify for the zero or 3 percent (nonpersonal) time deposit reserve requirement if, for savings deposits, no more than
three preauthorized, automatic, or telephone transfers are allowed each month, and for MMDAs, no more than six trans
fers per month are authorized, of which three can be by check, draft or debit card. Holders of both accounts still will be able
to make unlimited withdrawals or inter-account transfers by mail, messenger, or in person at the depository institution or at
an ATM.
The amendments also remove the $150,000 limitation on business savings accounts, bringing their treatment into line
with MMDAs. If either savings deposits or MMDAs held by businesses are authorized to exceed the transfer limitations
described above, they may be considered demand deposits on which interest could not be paid because businesses are not
eligible to have NOW or ATS accounts.
Certain early withdrawal penalties are retained in the revised Regulation D to help maintain distinctions between
transaction accounts and time deposits, and between nonpersonal time deposits of different maturities for reserve require
ment purposes. Early withdrawal penalties of at least seven days’ interest are required on any withdrawal permitted within
the first six days after a time deposit is made. This requirement applies to both personal and nonpersonal time deposits. For
nonpersonal time deposits with original maturities or notice periods of 18 months or more that allow withdrawal within the
first 18 months o f the deposit, a one month’s interest penalty is required.
The new early withdrawal rules are effective April 1, 1986, for most institutions. Credit unions and other depository
institutions not now subject to regulatorily prescribed early withdrawal penalties will have until January 1, 1987, to begin
imposing such penalties on time deposits opened, renewed, or added to on or after that date.
Enclosed is the text of amendments, effective April 1, 1986, to Regulations D and Q, which have been reprinted
from the Federal Register of March 20. Questions regarding this matter may be directed to our Compliance Exami
nations Department (Tel. No. 212-791-5919).
E. G erald Corrigan,
P re sid e n t.
Board of Governors of the Federal Reserve System
RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
AMENDMENTS TO REGULATION D
(effective A pril 1, 1986)
savings deposits (including MMDAs),
and time deposits. The amendments to
n CFR Fart §04
Regulation D include revised minimum
early withdrawal penalties designed to
[Reg. D; Docket M R-0565]
e.
distinguish between certain types of
deposits for reserve requirement
D©fin!tl©n @ Deposit sod TeeMeaS
tf
purposes. The amendments also include
Amendment©
minor changes to the definitions in
<&
©(EM Board of Governors of the
ev:
Regulation D and clarification of
existing requirements for classifying
Federal Reserve System,
accounts.
aevoow: Final rule.
At this time, the Board is also
SUMMARY: Pursuant to its authority
adopting other technical amendments to
under section 19 of the Federal Reserve
Regulations D and Q. The Board will be
Aet, as amended, the Board is adopting
amending the advertising rule in its
final rules amending 12 CFR Part 204
Regulation Q at a later date.
(Regulation D—Reserve Requirements of IFFievswi ®&?S: April 1,1986.
Depository Institutions). Concurrently,
FOR FURTHER I^F©RMAYI©P3 ©@MTA©V:
the Board is adopting a final rule
John Harry Jorgenson, Senior Attorney
amending 12 CFR Part 217 (Regulation
(202/452-3778) or Patrick J. McDivitt,
Q—Interest on Deposits). The
Attorney (202/452-3818), Legal Division,
amendments are being adopted after
Thomas Simpson, Deputy Associate
consideration of public comments
Director (202/452-3546), Division of
received on proposed amendments to
Research and Statistics, or Earnestine
Regulation D (51 FR 27, January 2,1986)
Hill or Dorothea Thompson,
and Regulation Q (51 FR 31, January 2,
Telecommunication Device for the Deaf
1986).
(TDD) (202/452-3544), Board of
The amendments are due to the
Governors of the Federal Reserve
expiration on March 31,1986, of the
System, Washington, DC 20551.
Depository Institutions Deregulation
supplementary information: Section
Committee (“DIDC”) and with it the
19(b) of the Federal Reserve Act, 12
authority to set regulatory interest rate
U.S.C. 461(b), provides the Board with
ceilings on deposits other than demand
the authority to impose reserve
deposits. In addition, the DIDC’s rules
requirements on deposits' held by
authorizing money market deposit
depository institutions, and section 19(a)
accounts (“MMDAs”) expire on that
of that A ct 12 U.S.C 461(a), gives the
date along with the provisions in
Board the authority to define terms used
Regulation Q prescribing early
in section 19 and to prevent evasions of
withdrawal penalties. The statutory
section 19. Pursuant to this authority, the
prohibition against the payment of
Board promulgated Regulation D. In the
interest on demand deposits remains in
past, Regulation D definitions of deposit
effect.
categories have been used in the
Generally, the amendments to
regulation ©f file payment ©f interest on
Regulation D are intended to preserve
deposits under the Board’s Regulation
the current scheme of reserve
Q—Interest on Deposits (12 CFR Part
requirements for transaction accounts,
FEDERAL RESERVE SYSTEM
For this Regulation to be complete, retain:
1) Regulation D pamphlet, effective June 20, 1983.
2) Amendments effective October 1, 1983 and December 31,1985
217), and this practice will continue.
One such definition is the money market
deposit account ("MMBA”).1
The Gam-St Germain Depository
Institutions Act of 1982 (Pub. L. 97-320)
directed die DIDC to create the MMDA.
As implemented by the DIDC, the
MMDA permits depositors limited
authority to make third party payments
from the account. Senate Joint
Resolution ©7-271 (Pub. L. ©7-457) also
provided that the MMDA would not be
considered a ’transaction account” for
purposes of Regulation D, provided that
third-party payments were limited.
Consequently, Regulation D excluded
the MMDA from the definitions of
“transaction account” and "demand
deposit" even though funds could be
withdrawn from an MMDA by check or
draft.
On March 31,1988, the regulations of
the DIDC implementing the MMDA
expire along with the regulatory
limitations on the payment of interest on
deposits and the prescribed early
withdrawal penalties.*
2
In order to take these changes into
account and to make clarifying and
technical changes, the Board is
amending its Regulation D. The
amendments are designed to: (1)
Preserve the MMDA, largely in its
current form; (2) establish limited early
withdrawal penalties for reserve
requirement purposes; and (3) remove
the $150,000 limit on business savings
’ Similar categories were established under
comparable authority ®f the Federal Deposit
Insurance Corporation and the Federal Home Loan
Bank Board.
2
Statutory limitations, such as the prohibition
against the payment of interest on demand deposits
and the eligibility requirements for NOW and ATS
accounts, are not affected by the expiration.
(in c lu d e d in s lip sh e e t
d a te d Ja n u a ry 198 6 )
3) This slip sheet.
[Enc. Cir. No. 10,018]
PRINTED IN NEW YORK, FROM
F E D E R A L R E G IS T E R ,
VOL. 51, NO. 54
deposits and clarify the limit on
telephone transfers from such accounts.
In so» doing, the amendments redefine
the terms "transaction account,”
"savings deposit” and “time deposit”
and, with certain exceptions, preserve
the current scheme of reserve
requirements on deposits. The
amendments also make other clarifying
and technical changes to Regulation D.
The principal amendments are
discussed in detail below.
or draft limitation. The revised
Regulation D incorporates this change.
Time ®sp©sits and Early Withdrawals
Currently, section 19(j] of the Federal
Reserve Act provides that a depositor
may withdraw funds from a time deposit
befose maturity only under the rales and
regulations of the Board. Under this
authority, Regulation Q currently
prescribes certain minimum penalties
fey early withdrawals from time
deposits. Early withdrawal penalties
Preservation @ff the MMDA
help t© maintain the distinction between
The current Regulation D incorporates
a “trassaution account” and a “time
by reference the regulatory description
deposit” and to maintain the differences
of the MMDA adopted by the
in maturities on time deposits primarily
Depository Institutions Deregulation
to enforce interest rate ceilings. The
Committee ("DIDC”). Because the DIDC
express statutory authority to prescribe
and its rules expire on March 31,1986,
rules regarding early withdrawals from
Regulation D, as amended, will include
time deposits expires on M arch 31,1986
the descriptive characteristics of the
and the Board no longer will require
MMDA for the purposes of the
such a penalty under that authority.
regulation. Generally, the MMDA
Nevertheless, the Board still believes
continues to be limited to six
that the early withdrawal of funds from
preauthorized, automatic, or telephone
time deposits undermines the distinction
transfers per month. Three of the six
between a “transaction account” and a
transfers may be by check payable to
“time deposit” and between time
third-parties. Consequently, an existing
deposits of varying maturities for
MMDA will continue to be treated as a
monetary policy purposes under
"savings deposit" under the amended
Regulation D.
rule, provided the applicable transfer
The Board is amending its definition
limitations are adhered to. Generally,
of “time deposit” to provide that a time
comments favored retention of the
deposit with a minimum maturity of
current MMDA treatment.
seven days or more from which
The amendments also liberalize the
withdrawals are permitted within the
treatment of certain transfers from
first six days after the date of deposit
MMDAs. Under existing rules, loan
will be a “time deposit” only if it meets
payments from an MMDAs. Under
the other criteria for a time deposit and
existing rules, loan payments from an
is subject to a minimum early
MMDA to the institution itself are
withdrawal penalty equal to seven days’
counted toward the six transfer limit
simple interest on the amount
while such payments made from an
withdrawn.
ordinary savings account are not
Under Regulation D, nonpersonal time
counted toward the three transfer limit
currently applicable to such accounts for deposits with a maturity of one and onehalf years or more are subject to a zero
preauthorized or telephone transfers.
percent reserve requirement while
Consequently, a depositor may make
nonpersonal time deposits with a
unlimited loan repayments from a
shorter maturity are subject to a three
savings account but only three per
percent reserve requirement. If a
month from an MMDA. Several
nonpersonal time deposit has a stated
comments suggested treating both
accounts similarly to reduce monitoring maturity or notice period of o n e and
one-half years or more and early
and administrative costs. The revised
withdrawals are permitted a f t e r s ix
regulation provides for unlimited loan
days but within one and o n e -h a l f years
payments to the institution from an
MMDA as well as from a savings
after the date of deposit, it m u s t be
deposit.
subject to a minimum penalty equal to
oae month’s simple interest on the
Currently, any account from which a
payment can be made to a third party by amount withdrawn in order to be
treated as a “nonpersonal time deposit”
debit card is a “transaction account.”
with a maturity of one and one-half
The Board’s proposal would have
yeaES or more for purposes of Regulation
permitted debit card transfers to third
D.
parties from MMDAs so long as they
were counted towards the three check
Any deposit failing to meet either the
2
definition of "time deposit” or “savings
deposit” will be considered a
“transaction account” and will be
subject to the transaction account
reserve requirements.
The proposal had provided that after
a partial early withdrawal, a deposit
ceased to be a time deposit unless the
remaining balance w as placed in a new
account. A number of commentators
indicated that it would be burdensome
to establish separate new accounts in
such cases. Accordingly, the final rule
provides that the remaining balance in a
time deposit after a partial early
withdrawal will continue to be regarded
as a “time deposit” if subsequent early
withdrawals are subject to the seven
day penalty for withdrawals made
within six days after the last partial
withdrawal.
Several commentators expressed
concern over the implementation of the
early withdrawal penalty provisions in
the definition of “time deposit.” This
issue w as of particular concern to the
National Credit Union Administration
which noted that for Federal credit
unions, limitations on early withdrawals
were deregulated in 1982. The NCUA
requested a transition period to allow
modification of credit union forms.
In general response to these
comments, under the final rule, existing
time deposits will continue to be time
deposits. The new early withdrawal
penalties must be imposed on accounts
opened on or after April 1,1986. In
response to the NCUA’s concerns; the
final rule provides a longer
implementation period for institutions
that currently lack a regulatory
requirement for such a penalty, as in the
case of Federal credit unions or
nonfederally insured institutions that
have no such penalty prescribed by
state law or regulation. For these
institutions, the penalty must be
included in any account opened,
renewed or to which additional deposits
are made on or after January 1 , 1987.3
Commentators also suggested
3 For institutions with an existing stock of deposit
contract forms, the Board believes that early
withdrawal penalties may be implemented with an
addendum attached to the existing form. For
example, the following language could be used to
implement the seven day penalty: “Addendum to
[ ti m e d e p o s i t o r t h e in s tit u tio n 's n a m e f o r s u c h
d e p o s i t ) issued to ( n a m e o f c u s t o m e r ) o n ( d a te ) .
This deposit has a maturity of ( s t a t e m a t u r it y ) , if
it
is withdrawn within the six (6) calendar days
following the date of deposit, or within six (6) days
following any partial withdrawal made prior to the
maturity date, such withdrawal shall be subject to a
minimum penalty of seven (7) days' simple interest
on the amount withdrawn.”
retention of the current exceptions to the
early withdrawal penalty rules. The
final rule incorporates into Regulation D
the exceptions for early withdrawals
penalties currently specified by
Regulation Q.
limitations for such accounts. If the
depositor is authorized to exceed the
transfer limitation, the account would be
considered to be a "transaction
account" for the purposes of Regulation
D reserve requirements. (Such account
would not be a "demand deposit” /o r
Additional Early Withdrawal Penalties
purposes of the Regulation Q prohibition
In its-proposal, the Board indicated an against payment of interest on demand
deposits if the depositor is eligible to
interest in retaining early withdrawal
penalties in order to assist institutions in hold another type of transaction
account, such as a NOW account or an
matching the maturities of assets and
ATS account, that would permit the
liabilities for purposes of safety and
soundness of the institutions. A number particular excess transfers.)
Commentators expressed concern that
of comments supported this concept.
under the proposal, an excess transfer
The Board also indicated that it would
might result in automatic reclassification
consult with the federal depository
of the account even though the transfer
institution regulatory agencies
concerning the appropriate structure and w as an isolated occurrence and the
depository institution could not prevent
use of penalties for this purpose. This
the occasional excess transfer at the
issue has been raised with the Federal
time it occurred. The final rule
Deposit Insurance Corporation, the
incorporates the procedures for
Comptroller of the Currency, and the
monitoring accounts on an ex p o st basis
Federal Home Loan Bank Board. In
that are currently specified in
proposed regulations adapting to the
| 217.7(g)(5)(ii) of Regulation Q for
expiration of the DIDC, the Federal
MMDAs.
Home Loan Bank Board also requested
comment on the retention of early
Under this procedure, institutions
withdrawal penalties for this purpose.
must contact customers who exceed the
The Board intends to study the
transfer limitations on more than an
economic and legal issues relating to
occasional basis. For customers who
imposing early withdrawal penalties for continue to violate the transfer
safety and soundness purposes in
limitations after being contacted, the
cooperation with the other federal
institution must close the account or
depository institution regulatory
take aw ay its transfer and draft
agencies. In the interim, the Board
capacities. If an institution continues to
continues to believe that such penalties
permit recurring excess transfers from a
serve a useful purpose in maintaining
savings deposit or an MMDA or fails to
the stability of an institution’s liabilities, maintain-procedures to enforce the
and institutions are encouraged to
transfer limitations, the account may be
consider including them in their time
determined to authorize such excess
deposit contracts.
transfers and the institution may be
sequired to reclassify the account as a
Transfers From Savings Deposits
“transaction account.” For example, if
Under existing regulations, a
the depositor is eligible to maintain a
depositor may make up to three
NOW account and excess transfers are
preauthorized or telephone transfers per made by check, the account may be
month from a savings deposit to another required to be reclassified as a NOW
account of the depositor or a third
account against which transaction
person. MHBAs permit up to six
account reserves will be required to be
preauthorized, telephone or automatic
held. If the depositor is not eligible to
transfers per month.
hold a NOW account, the account may
The final rule permits automatic
be required to be reclassified as a
transfers to be included within the three demand deposit on which interest could
transfers per month permitted for
not be paid under Regulation Q.
savings deposits, in order to make the
transfer limitations more consistent with Business Savings Deposits
the transfer limitations applicable to
The proposal removed the separate
MMDAs.
definition of savings deposit from
Regulation Q and relied instead on the
Enforcement of Transfer Limitations
Regulation D definition. This change
Under the proposed rule and the final
eliminated the current $150,000
rule, the definition of “savings deposit”
limitation on business savings deposits,
includes an ordinary savings account
this bringing the treatment of business
and an MMBA unless the depositor is
savings deposits in line with the
authorized to exceed the transfer
treatment of MMDAs. All comments on
3
the proposal to remove this limitation
supported the change.
This change also limited business
telephone transfers from a savings
deposit to three per month. If a
depository institution authorized a
business depositor to exceed the
applicable transfer limitation, however,
the institution may be required to
reclassify the account as a "demand
deposit" because businesses are not
authorized to maintain NOW accounts
or ATS accounts. The final rule also
retains this limitation.
Miscellaneous
1. The proposal treated transfers
made by remote (or home) computer or
other telecommunications access device,
other than an ATM, as transfers
counting toward the telephone transfer
limitations. The few comments that
were received on this issue were
divided. The Board is amending its
definitions of “transaction account” and
"savings deposit” (including “MMDA”)
to clarify that each such transfer should
be counted toward the monthly
limitations because there is no practical
difference between the customer using
data signals from a site remote from the
premises of the depository institution to
order transfers and using oral
commands over the telephone to order
transfers.
2. A number of comments on the
proposal expressed concern that the
wording of the draft regulation seemed
to indicate that the Board was seeking
to place limits on withdrawals from
savings deposits and MMDAs at ATMs
where no such limits currently exist. The
Board intended no such ehange. The
final rule incorporates language
currently found in Regulation Q
delineating permissible withdrawals
from MMDAs at ATMs in the definition
of savings, deposits, including the
definition of MMDAs.
& Under the existing definitions in
Regulation D, the term “transaction
account” includes demand deposits,
NOW accounts, and ATS accounts.
Currently, the term “demand deposit” in
Regulation B includes any deposit that
is not a “time deposit” or a "savings
deposit.” Currently, NOW accounts and
ATS accounts are “savings deposits”
and therefore are not “demand
deposits.” Under the revised definitions,
the term “transaction account”
continues to include “demand deposits,”
NOW accounts, and ATS accounts and
specifically provides that the term
includes any deposit that is not a “time
deposit” or “savings deposit.” The
definition of “demand deposit”
expressly excludes NOW accounts and
ATS accounts. NOW accounts and ATS
accounts enjoy a statutory exemption
from the prohibition against the
payment of interest on demand deposits
and, under the amendments to
Regulation Q being adopted
concurrently with these amendments,
the Regulation D definition of demand
deposit is used in Regulation Q to define
those accounts on which the payment of
interest is prohibited.
4. The Board is making technical
amendments to other portions of the
regulation to remove obsolete terms and
requirements. These technical
amendments include the following
provisions:
a. Section 204.3(h) of Regulation D
provides for a phase-in of the carryover
of excesses or deficiencies for
depository institutions that report
reservable liabilities weekly. Because
the phase-in is now complete, the Board
is simplifying the section and
eliminating its obsolete phase-in
schedule.
b. Section 204.4 prescribes transitional
adjustments for computing federal
reserve requirements. Reserve phase-in
schedules were established in 1980 for
member, former member, and
nonmember depository institutions.
Because several of these transitional
schedules have been completed, and
because the statute providing that
MMDAs are not subject to the phase-in
expires on March 31,1986, the Board is
revising §204.4, and cross references in
other sections of the regulation, to
remove obsolete provisions and
schedules.
c. Section 204.8(e) provides that the
failure of an international banking
facility to comply with the requirements
of §204.8 may cause it to be subject to
the limitations on the payment of
interest on time deposits contained in
the Board’s Regulation Q. Because these
limitations expire on March 31,1986, the
Board is deleting the cross reference.
5. Finally, nonpersonal MMDA-type
deposits held by depository institutions
(other than Hawaiian nonmember
institutions}, will be subject to the
phase-in schedules for federal reserve
requirements rather than to full reserve
requirements beginning with April 1,
1986. The Board has determined that for
weekly reporters full reserves shall
continue to be maintained on these
deposits until the reserve maintenance
period for nontransaction accounts
beginning April 24,1986, which
corresponds to the computation period
commencing March 25,1986. For
quarterly reporters, full reserves shall be
maintained until the reserve
maintenance period commencing April
17,1986, which corresponds to the
quarterly computation period beginning
March 18,1986. Hawaiian institutions
will continue to be governed by the
Board’s December 13,1985 amendment
to Regulation D (50 FR 51508; December
17,1985).
Regulatory Flexibility Analysis
The Regulatory Flexibility A ct (5
U.S.C. 601 e t seq.) requires the Board to
consider the impact of this proposal on
small entities. In this regard, the Board
recognized a potential transition
problem for credit unions and other
entities not now subject to regulations
requiring early withdrawal,penalties. It
acted to alleviate this problem by
delaying the effective date of its
requirements for such penalties for such
institutions until January 1,1987. It is the
Board’s view that the amendments will
not impose any additional reporting or
recordkeeping requirements. To a large
extent, the amendments retain the
current reserve maintenance and
deposit reporting system. Obsolete
terms and provisions are being removed
from the regulation to simplify it, and
several of the clarifying amendments
ensure more liberal treatment for
savings deposits and MMDAs. This rule
applies to all depository institutions. It
is not anticipated that the amendments
will have a negative effect on the ability
of small depository institutions to attract
deposits.
This rule relieves certain existing
regulatory restrictions on depository
institutions, preserves current policies
regarding the treatment of these
deposits under the regulation, and
replaces statutory and regulatory
provisions expiring March 31,1986.
Accordingly, the Board finds good cause
for implementing this rule on April 1,
1986, which is within thirty days after
the date of publication.
7 of the In tern ation al Banking A c t o f 1978 (12
U .S.C . 3105), u n less oth erw ise noted.
2. In § 204.2, the introductory text and
paragraphs (b); (c); (d); (e); (f)(l)(i), (ii),
and (v) are revised; and (f)(3) is added
to read:
§ 204.2
Definitions.
For purposes of this part, the
following definitions apply unless
otherwise specified:
★
*
*
*
*
(b)(1)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.
Demand deposits may be in the form of:
(1) 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
contractually required notice of
withdrawal as given and the notice
period has expired and which have not
been renewed (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 six days, a check (or other
instrument, device, or arrangement for
the transfer of funds) drawn on the
List of Subjects im 12 CFR Part 264
depository institution, where the
account of the institution’s customer
Banks, banking; Federal Reserve
already has been debited.
System; Foreign banking.
(2) The term “demand deposit” also
Pursuant to its authority under section means deposits or accounts on which
19(a) of the Federal Reserve A ct (12 USC the depository institution has reserved
461(a)), the Board is amending Part 204
the right to require at least seven days’
as follows:
written notice prior to withdrawal or
transfer of any funds in the account and
from which the depositor is authorized
m m 2 0 4 — [AMENDED]
to make withdrawals or transfers in
1. The authority citation for 12 CFR
excess of the withdrawal or transfer
Part 204 continues to read:
limitations specified in § 204.2(d)(2) for
A uthority: S ecs. 19, 25, 25(a) of the Fed eral
such an account and the account is not a
R ese rv e A c t (12 U .S.C . 461, 601, 611); and sec.
NOW account, or an ATS account or
4
other account that meets the criteria
specified in either | 204.2(b)(3)(ii) or (iii)
below.
(3)
“Demand deposit” does not
include:
(i) Any account that is a time deposit
or a savings deposit under this Part;
(ii) Any deposit or account on which
the depository institution has reserved
the right to require at least seven days’
written notice prior to withdrawal or
transfer of any funds in the account and
either—
(A) Is subject to check, draft,
negotiable order of withdrawal, share
draft or similar item, such as an account
authorized by 12 USC 1832(a) (“NOW
Account”) and an MMDA as described
in § 2Q4.2(d)(2)(ii), provided that the
depositor is eligible to hold a NOW
account; or
(B) From which the depositor is
authorized to make transfers by
preauthorized transfer or telephonic
(including data transmission) agreement,
order or instruction to another account
or to a third party, provided that the
depositor is eligible to hold a NOW
account;
(iii) Any deposit or account on which
the depository institution has reserved
the right to require at least seven days’
written notice prior to withdrawal or
transfer of any funds in the account and
from which withdrawals may be made
automatically through payment to the
depository institution itself or through
transfer of credit to a demand deposit or
other account in order to cover checks
or drafts drawn upon the institution or
to maintain a specified balance in, or to
make periodic transfers to such other
account, such as accounts authorized by
12 USC 371a (automatic transfer account
or ATS account), provided that the
depositor is eligible to hold an ATS
account;
(iv) Any obligation that is a time
deposit under § 2Q4.2(c)(l)(iv);
(v) Checks or drafts drawn by the
depository institution on the Federal
Reserve or on another depository
institution; or
(vi) IBF time deposits meeting the
requirements of § 204.8(a)(2).
(c)(1) ‘Tim e deposit" means:
(i)
A deposit that the depositor does
not have a right and is not permitted to
make withdrawals from within six days
after the date of deposit unless the
deposit is subject to an early
withdrawal penalty of at least seven
days’ simple interest on amounts
withdrawn within the first six days after
(B) Payable a t the expiration of a
specified time not less than seven days
after the date of deposit;
(C) Payable only upon written notice
that is actually required to be given by
the depositor not less than seven days
prior to withdrawal;
(D) Held in “club” accounts (such as
“Christmas club" accounts and
‘‘vacation club” accounts that are not
maintained as “savings deposits”) that
are deposited under written contracts
providing that no withdrawal shall -be
made until a certain number off periodic
deposits have been made during a
period of not less than three months
even though some of fee deposits may
be made within six days from the end of
the period; or
(E) Share certificates and certificates
1 Accounts existing on March 31,1988, may
of indebtedness issued by credit unions,
satisfy the early withdrawal penalties specified by
and certificate accounts and notice
this Part by meeting the Depository Institutions
Deregulation Committee's early withdrawal
accounts issued % savings and loan
penalties in existence on March 31,1986. Accounts
associations;
that otherwise meet the requirements for time
(ii) A “savings deposit;”
deposits but that lack such penalties due to a lack of
deposit.1 A time deposit from which
partial early withdrawals are permitted
must impose additional early
withdrawal penalties of at least seven
days’ simple interest on amounts
withdrawn within six days after each
partial withdrawal. Iff such additional
early withdrawal penalties are not
imposed, the account ceases to be a time
deposit. The account may become a
savings deposit iff it meets the
requirements for a saving deposit;
otherwise it becomes a transaction
account.2 “Time deposit” includes
funds—
(A)
Payable on a specified date not
less than seven days after the date of
deposit;
a regulatory requirement for such a penalty, as in
the case of Federally-chartered credit unions, may
continue to he classified as time deposits; however,
the penalty should he included in time deposits
opened, renewed or to which additional deposits
are made on or after January 1,1987.
A time deposit, or a portion thereof, may be paid
before maturity without imposing the early
w ithdrawal penalties specified by this part;
(a) Where the time deposit is maintained in an
Individual Retirement Account established in
accordance with 26 U.S.C. 408 and is paid within
seven days after establishment of the Individual
Retirement Account pursudht to 26 CFR 1.4086(d)(4), or where it is m aintained in a Keogh (H.R.
10) plan; provided that the depositor forfeits an
amount at least equal to the simple interest earned
on the amount withdrawn;
(b) Where the depository institution pays all or a
portion of a time deposit representing funds
contributed to an Individual Retirement Account or
a Keogh (H.R. 10) plan established pursuant to 26
U.S.C. 408 or 26 U.S.C. 401 when the individual for
whose benefit the account is maintained attains age
59l/s or is disabled (as defined in 26 U.S.C. 72(m)(7))
or thereafter;
(c) Where the depository institution pays that
portion of a time deposit on which federal deposit
insurance has been lost as the result of the merger
of two or more federally insured banks in which the
depositor previously m aintained separate time
deposits, for a period of one year from the date of
the merger;
(d) Upon the death of any owner of the time
deposit funds;
(e) When the owner of the time deposit is
determined to be legally incompetent by a court or
other administrative body of competent jurisdiction;
or
(f) Where a time deposit is withdrawn within ten
days after a specified maturity date even though the
deposit contract provided for automatic renewal at
the maturity date.
2 A nonpersonal time deposit with a stated
maturity of one and one-half years or more may be
treated as having an original maturity of one and
one-half years or more for reserve requirement
purposes only if it is subject to the minimum penalty
described in | 204.2(f)(3).
5
(iii) An “IBF time deposit” meeting the
requirements of | 204.8(a)(2); and
(iv) Borrowings, regardless of
maturity, represented by a promissory
note, an acknowledgment of advance, or
similar obligation described in
§ 204.2(a)(l)(vii) that is issued to, or any
bankers’ acceptance (other than the type
described in 12 U.S.C. 372) of the
depository institution held by—
(A) Any office located outside the
United States of another depository
institution or Edge or agreement
corporation organized under the laws of
the United States;
(B) Any office located outside the
United States of a foreign bank;
(C) A foreign national government, or
an agency or instrumentality thereof,3
engaged principally in activities which
are ordinarily performed in the United
States by governmental entities;
(D) An international entity of which
the United States is a member; or
(E) Any other foreign, international, or
supranational entity specifically
designated by the Board.4
(2)
A time deposit may be represented
by a transferable or nontransferable, or
a negotiable or nonnegotiable,
certificate, instrument, passbook, or
statement, or by book entry or
otherwise.
3 Other than states, provinces, municipalities, or
other regional or local governmental units or
agencies or instrumentalities thereof.
4 The designated entities are specified in 12 CFR
217.126.
(d)(1) “Savings deposit” means a
of such transfers or withdrawals.5
deposit or account with respect to which
(ii) A deposit or account, such as an
the depositor is not required by the
account commonly known as a “money
deposit contract but may at any time be market deposit account” (“MMDA”),
required by the depository institution to that otherwise meets the requirements
give written notice of an intended
of § 204.2(d)(1) and from which, under
withdrawal not less than seven days
the terms of the deposit contract or by
before withdrawal is made, and that is
practice of the depository institution, the
not payable on a specified date or at the depositor is permitted or authorized to
expiration of a specified time after the
make no more than six transfers per
date of deposit. The term “savings
calendar month or statement cycle (or
deposit’ includes a regular share
similar period) of at least four weeks to
account at a credit union and a regular
another account (including a transaction
account at a savings and loan
account) of the depositor at the same
association.
institution or to a third party by means
(2)
The term “savings deposit” also of the preauthorized or automatic
means:
transfer (see 1 204.2(d)(2)(i)), or
(i)
A deposit or account that otherwise
telephonic (including data transmission)
meets the requirements of § 204.2(d)(1)
agreement, order or instruction and no
and from which, under the terms of the
more than three of the six such transfers
account agreement, or by practice of the may be made by check, draft, debit card
depository institution, the depositor is
or similar order made by the depositor
permitted or authorized to make no
and payable to third parties. Such an
more than three withdrawals per
account is not a “transaction account”
calendar month, or statement cycle (or
by virtue of an arrangement that permits
similar period) of at least four weeks, for transfers for the purpose of repaying
the purpose of transferring funds to
loans and associated expenses at the
another account of the depositor at the
same depository institution (as
same institution (including a
originator or servicer) or that permits
“transaction account”) or for making
transfers of funds from this account to
payment to a third party by means of a
another account of the same depositor
preauthorized or automatic transfer, or
at the same institution or permits
telephonic (including data transmission) withdrawals (payments directly to the
agreement, order or instruction,
depositor) from the account when such
provided that no such withdrawals may transfers or withdrawals are made by
be by check, draft or similar order
mail, messenger, automated teller
(including debit card) drawn by the
machine or in person or when such
depositor to third persons. A
withdrawals are made by telephone (via
“preauthorized transfer” includes any
check mailed to the depositor)
arrangement by the depositor institution regardless of the number of such
to pay a third party from the account of
transfers or withdrawals.6
a depository upon written or oral
5 In order to ensure that no more than the
instruction (including an order received
permitted number of withdrawals or transfers are
through an automated clearing house
made, for an account to come within the definitions
(ACH) or any arrangement by a
in § 204.2(d)(2), a depository institution must either:
depository institution to pay a third
(a) prevent w ithdrawals or transfers of funds in
this account that are in excess of the limits
party from the account of the depositor
established by § 204.2(d)(2)(i) or (ii), or
at a predetermined time or on a fixed
(b) adopt procedures to monitor those transfers
schedule. Such an account is not a
on an e x p o s t basis and contact customers who
“transaction account” by virtue of an
exceed the limits established by § 204.2(d)(2)(i) or
(ii) on more than an occasional basis.
arrangement that permits transfers for
For customers who continue to violate those
the purpose of repaying loans and
limits after being contacted by the depository
associated expenses at the same
institution, the depository institution must either
depository institution (as originator or
close the account and place the funds in another
account that the depositor is eligible to maintain or
servicer) or that permits transfers of
take away the account's transfer and draft
funds from the account to another
capacities.
account of the same depositor at the
An account that authorizes withdrawals or
same institution or permits withdrawals transfers in excess of the permitted number in a
(payments directly to the depositor)
transaction account regardless of whether the
from the account when such transfers or authorized number of transactions are actually
made.
withdrawals are made by mail,
6 See footnote 5. For accounts described in
messenger, automated teller machine or
in person or when such withdrawals are § 204.2(d)(2)(ii), the institution at its option may use
on a consistent basis either the date on the check,
made by telephone (via check mailed to draft or similar item or the date the item is paid in
the depositor) regardless of the number
applying the limits on such items.
6
(3) A deposit may continue to be
classified as a savings deposit even if
the depository institution exercises its
right to require notice of withdrawal.
(4) “Savings deposit” does not include
funds deposited to the credit of the
depository institution’s own trust
department where the funds involved
are utilized to cover checks or drafts.
Such funds are "transaction accounts.”
(e)
"Transaction account” means a
deposit or account from which the
depositor or account holder is permitted
to make transfers or withdrawals by
negotiable or transferable instrument,
payment order of withdrawal, telephone
transfer, or other similar device for the
purpose of making payments or
transfers to third persons or others or
from which the depositor may make
third party payments at an automated
teller machine (“ATM”) or a remote
service unit, or other electronic device,
including by debit card, but the term
does not include savings deposits or
accounts described in § 204.2(d)(2) even
though such accounts permit third party
transfers. "Transaction account”
includes:
(1) Demand deposits:
(2) Deposits or accounts on which the
depository institution has reserved the
right to require at least seven days’
written notice prior to withdrawal or
transfer of any funds in the account and
that are subject to check, draft,
negotiable order of withdrawal, share
draft, or other similar item, except
accounts described in § 204.2(d)(2)(h)
(MMDAs), but including accounts
authorized by 12 USC 1832(a) (’’NOW
accounts”).
(3) Deposits or accounts on which the
depository institution has reserved the
right to require at least seven days’
written notice prior to withdrawal or
transfer of any funds in the account and
from which withdrawals may be made
automatically through payment to the
depository institution itself or through
transfer or credit to a demand deposit or
other account in order to cover checks
or drafts drawn upon the institution or
to maintain a specified balance in, or to
make periodic transfers to such
accounts, except accounts described in
§ 204.2(dJ(2), but including accounts
authorized by 12 U.S.C. 371a (automatic
transfer accounts or ATS accounts).
(4) Deposits or accounts on which the
depository institution has reserved the
right to require at least seven days’
written notice prior to withdrawal or
transfer of any funds in the account and
under the terms of which, or by practice
of the depository institution, the
depositor is permitted or authorized to
make more than three withdrawals per
month or statement cycle (or similar
period) of at least four weeks for
purposes o f transferring funds to
another account of the depositor at the
same institution (including a
“transaction account”) or for making
payment to a third party by means of
preauthorized transfer, or telephonic
(including data transmission) agreement,
order or instruction, except accounts
described in § 204.2(d)(2). An account
that authorizes more than three such
withdrawals in a calendar month, or
statement cycle (or similar period) of at
least four weeks, is a “transaction
account” whether or not more than three
such transfers are made during such
period. A “preauthorized transfer"
includes any arrangement by the
depository institution to pay a third
party from the account of a depositor
upon written or oral instruction
(including an order received through an
automated clearing house (ACH)), or
any arrangement by a depository
institution to pay a third party from the
account of the depositor at a
predetermined time or on a fixed
schedule. Such an account is not a
“transaction account” by virtue of an
arrangement that permits transfers for
the purpose of repaying loans and
associated expenses at the same
depository institution (as originator or
servicer) or that permits transfers of
funds from this account to another
account of the same depositor at the
same institution or permits withdrawals
(payments directly to the depositor)
from the account when such transfers or
withdrawals are made by mail,
messenger, automated teller machine or
in person or when such withdrawals are
made by telephone (via check mailed to
the depositor) regardless of the number
of such transfers or withdrawals.
(5) Deposits or accounts maintained in
connection with an arrangement that
permits the depositor to obtain credit
directly or indirectly through the
drawing of a negotiable or
nonnegotiable check, draft, order or
instruction or other similar device
(including telephone or electronic order
or instruction) on the issuing institution
that can be used for the purpose of
making payments or transfers to third
persons or others or to a deposit account
of the depositor.
(6) All deposits other than time and
savings deposits.
(f)(1) "Nonpersonal time deposit”
means:
(i) A time deposit including an
MMDA or any other savings deposit,
representing hinds in which any
beneficial interest is held by a depositor
which is not a natural person:
(ii) A time deposit, including an
MMDA or any other savings deposit,
that represents funds deposited to the
credit of a depositor that is not a natural
person, other than a deposit to the credit
of a trustee or other fiduciary if the
entire beneficial interest in the deposit
is held by one or more natural persons;
*
*
*
*
*
(v) A time deposit represented by a
promissory note, an acknowledgment of
advance, or similar obligation described
in § 204.2(a) (l)(vii) that is issued to, or
any bankers’ acceptance (other than the
type described in 12 U.S.C. 372) of the
depository institution held by:
(A) Any office located outside the
United States of another depository
institution or Edge or agreement
corporation organized under the laws of
the United States:
(B) Any office located outside the
United States of a foreign bank;
(C) A foreign national government, or
an agency or instrumentality thereof,7
engaged principally in activities which
are ordinarily performed in the United
States by governmental entities;
(D) An international entity of which
the United States is a member; or
(E) Any other foreign, international, or
supranational entity specifically
designated by the Board.8
*
*
*
*
*
one and one-half years from the date of
the deposit.9
*
*
*
*
*
§204.2 [Amended]
3. Section 204.2 is amended as follows:
(a) By redesignating the first footnote
1 in paragraph (h)(l)(ii)(A) as footnote
10 .
(b) By redesignating the second
footnote 1 in paragraph (h)(2)(ii) as
footnote 11 and revising the footnote to
read, “See footnote 10.”
(c) By redesignating footnote 2 in
paragraph (t)(l) as footnote 12.
4. Section 204.3 is amended "by
revising paragraphs (a){3)(i) and (h) to
read:
Computation and maintenance.
(a) * * *
(3)
* * * (i) In determining the reserve
requirements of a depository institution,
the exemption provided for in section
204.9(a) shall apply in the following
order of priorities:
(A) First, to net transaction accounts
that are first authorized by federal law
in any state after April 1,1980;
(B) Second, to other net transaction
accounts: and
(C) Third, to nonpersonal time
deposits (including MMDAs and other
savings deposits) and Eurocurrency
liabilities starting with those with the
highest reserve ratio under § 204.2(a)
and then to succeeding lower reserve
ratios.
§ 204.3
*
*
*
*
*
(h)
C a rry o v e r o f E x c e sse s o r
D eficien cies. Any excess or deficiency
in a required reserve balance for any
maintenance period that does not
exceed the greater of two percent of the
institution’s required reserves (including
required clearing balances and net of
the required clearing balance penalty
free band where applicable) or $25,000,
shall be carried forward to the next
maintenance period. Any carryover not
offset during the next period may not be
carried forward to subsequent periods.
*
*
*
*
*
(3) Any nonpersonal time deposit with
a stated maturity or notice period of one
and one-half years or more that permits
any early withdrawal must be subject to
a minimum early withdrawal penalty
equal to at least thirty days’ simple
interest on the amount withdrawn for
any withdrawal that occurs more than
six days but within one and one-half
years after the date of deposit. Any such
account not subject to this minimum
early withdrawal penalty will be
§204.4 [Amended]
regarded as a nonpersonal time deposit
5. Section 204.4 is amended as follows:
with an original maturity or notice
a. By amending the last sentence of
period of from seven days to less than
7 Other than states, provinces, municipalities, or
other regional or local governmental units or
agencies or instrumentalities thereof.
8 The designated entities are specified in 12 CFR
217.126.
7
9
See Footnote 1 for treatment of accounts
existing on March 31,1SS8 Mid for exceptions to the
imposition of the earty withdrawal penalties
imposed by this Part. The penalty required by this
§ 204.2(f)(3) and that required by § 204.2(c)(1) need
not be aggregated.
paragraph (a) by removing the language § 204.8 [Amended]
after “1980” and replacing it with a
6. Section 204.8 is amended as follows:
period.
a. revising paragraph (a)(2)(i)(B)(5) to
b. By removing paragraphs (b) and (c). read: A foreign national government, or
c. By redesignating paragraph (d) as an agency or instrumentality thereof,13
engaged principally in activities which
paragraph (b) and removing the phrase
are ordinarily performed in the United
“or (c), as applicable,”.
States by governmental entities; an
d. By redesignating paragraph (e) as
international entity of which the United
paragraph (c) and in new paragraph (c)
States is a member; or any other foreign
(2)(ii) replacing “eight” with
international or supranational entity
“seventeen”.
specifically designated by the Board;14
e. By redesignating paragraph (f) as
or
paragraph (d) and by removing from
b. By revising paragraph (a)(3)(v) to
new paragraph (d)(2) the language”,
read: A foreign national government, or
including deposits or accounts issued
pursuant to 12 CFR 1204.122,”.
f. By redesignating paragraph (g) as
paragraph (e) and changing the
13 Other than states, provinces, municipalities, or
references in paragraphs (e)(1) and (2)
other regional or local governmental units or
from “(a) through (f)” to “(a) through
agencies or instrumentalities thereof.
(d)” and the reference in paragraph
14 The designated entities are specified in 12 CFR
217.126.
(ej(2)(iii) from “(g)” to "(e)”.
an agency or instrumentality thereof,15
engaged principally in activities which
are ordinarily performed in the United
States by governmental entities; an
international entity of which the United
States is a member; or any other foreign
international or supranational entity
specifically designated by the Board; 16
or
c.
By amending paragraph (e) by
removing the phrase “and to interest
payment limitations that may be
applicable under Regulation Q (12 CFR
Part 217) on its IBF time deposits,”.
By ord er of the B oard of G o vern ors of the
F e d e ra l R eserv e Sy stem , M arch 1 7 ,1 9 8 8 .
W illiam W . W iles,
Secretary o f the Board.
[FR D oc. 8 6 -6 1 4 3 F iled 3 -1 9 - 6 8 ; 8:45 am ]
15 See footnote 13.
lfi See footnote 14.
(
c
8
Board of Governors of the Federal Reserve System
INTEREST ON DEPOSITS
A M E N D M E N T S T O R E G U L A T IO N Q
(effective A pril 1, 1986)
12 CFR Part 217
[Reg. Q; Docket No. K-0566]
interest ©o Deposits; Definition ©f
Deposit and Technical Amendments
&<3EMCY: Board of Governors of the
Federal Reserve System.
ACTION: Final rule.
summary : Pursuant to its authority
under section 19 of the Federal Reserve
Act, as amended, the Board is adopting
a final rule amending 12 CFR Part 217
(Regulation Q— Interest on Deposits).
Concurrently, the Board is amending 12
CFR Part 204 (Regulation D— Reserve
Requirements of Depository
Institutions). The amendments are being
adopted after consideration of public
comment on proposed amendments to
Regulation Q (51 FR 31) and Regulation
D (51 FR 27).
The amendments are due to the
expiration on March 31,1986, of the
statutory authority to set interest rate
ceilings on time and savings deposits
and to prescribe rules regarding early
withdrawals from time deposits. All
regulations of the Board issued under
this authority and all regulations of the
Depository Institutions Deregulation
Committee (“DIDC”) also expire on that
date.
These amendments rely on the
definitions of “deposit” and “demand
deposit” in the Board’s Regulation D—
Reserve Requirements of Depository
Institutions (12 CFR Part 204) for the
purposes of Regulation Q. The
amendments eliminate the sections of
Regulation Q that govern withdrawals
from time deposits and savings deposits,
set early withdrawal penalties, and
establish account characteristics and
interest rate ceilings. Rules regarding
early withdrawal penalties for reserve
requirement purposes (rather than for
enforcement of interest rate limitations)
and definitions of the various categories
of “deposit" now appear in Regulation
D.
This final rule does not address
advertising of deposits by member
banks (§ 217.6 of Regulation Q) which
the Board also published for comment
(51 FR 1379) and which will be adopted
at a later date.
EFFECTIVE ©ATE: April 1, 1988.
FOGi FURTHERINFORSVIATION C@NTACT:
John Harry Jorgenson, Senior Attorney
(202/452-3778), or Patrick J. McDivitt,
Attorney, (202/452-3818), Legal Division,
or Ernestine Hill or Dorothea Thompson,
Telecommunication Device for the Deaf
(TDD) (202/452-3544), Board of
Governors of the Federal Reserve
System, Washington, DC 20551.
SOIPPLEMEWTMRY BNF@RM
ATS©M Section
:
19(a) of the Federal Reserve Act, 12
U S C 461(a), gives the Board the
...
authority to issue rules defining terms
used in section 19 in order to prevent
evasions of that section. Section 19(i) of
that A ct (12 U S C 371a) prohibits the
...
payment of interest on a demand
deposit by a member bank, and section
19(j) of that Act (12 U S C 371b) gives
...
the Board authority to issue rules
governing the payment and advertising
of interest on deposits.1 Pursuant to this
authority, the Board promulgated its
current Regulation Q which regulates
the payment of interest on deposits.
The Board’s authority under section
19(j) to issue rules governing the
payment of interest on deposits, other
than demand deposits, and the
comparable authority of the Federal
Deposit Insurance Corporation and the
Federal Home Loan Bank Board expire
with the expiration of the Depository
Institutions Deregulation A ct of 1980 at
the end of March 31,1986.
The expiration of the rules of the
DIDC and of the authorities transferred
1 The current advertising rule is codified in
Regulation Q at 12 CFR 217.6—Advertising of
Interest on Deposits. In a separate rulemaking
pi oceeding, the Board requested comment on
proposed revisions to its rules on member bank
advertising of interest on deposits (51 FR 1379). The
comment period for the separate rulemaking on
advertising closed on March 6,1986.
For this Regulation to be complete, retain:
1) Regulation Q pamphlet, effective January 1, 1984.
2) This slip sheet.
[Enc. Cir. No. 10,018]
PRINTED IN NEW YORK, FROM FEDERAL REGISTER, VOL. 51, NO. 54
to the DIDC at the end of March 31,
1986, will not affect section 19(i) of the
Federal Reserve A ct which prohibits a
member bank from paying interest on a
demand deposit. Nor will these
expirations affect the authority of
member banks to offer accounts that
permit automatic transfers to checking
accounts (“ATS accounts”) as
authorized by the last sentence of
section 19(i) of the Federal Reserve Act
(12 U.S.C. 371a) or to offer accounts
subject to negotiable orders of
withdrawal (“NOW accounts”) as
authorized by section 2(a) of Pub. L. 9 3 100 (12 U.S.C. 1832(a)).
The amendments being adopted by
the Board revise §1 217.1-217.5 and
217.7 of Regulation Q by removing the
rules relating to penalties for early
withdrawals from time deposits (section
217.4) and the interest rate ceilings and
account characteristics for time and
savings deposits (primarily § 217.7).2
in order to prevent savings deposits
from being used to evade the prohibition
against the payment of interest on
“demand deposits,” the Board in the
past prescribed rules regarding
withdrawals from savings deposits. The
Board is retaining the substance of these
provisions but has incorporated them
into Regulation D. Consequently, the
rules governing withdrawals from
savings deposits, currently contained in
§ 217.5, are unnecessary and are being
rescinded.
The revised definition of “demand
deposit” in Regulation D, which is being
incorporated by reference in Regulation
Q, defines the accounts subject to the
prohibition against the payment of
interest on demand deposits. Under the
revised definition, the term “demand
deposit” excludes NOW accounts and
ATS accounts as well as ordinary
savings deposits and money market
deposit accounts (“MMDAs”) if the
applicable transfer limitations are
adhered to. If the depositor is authorized
to exceed the transfer limitations
applicable to savings deposits and
MMDAs, however, such accounts would
be “transaction accounts" for the
purpose of Regulation D but would not
be “demand deposits” for the interest
payment prohibition purposes.of
Regulation Q if the depositor is eligible
to hold another type of account, such as
a NOW account or an ATS account, that
would permit the particular excess
transfers. For other depositors, savings
deposits and MMDAs authorized to
exceed the withdrawal or transfer
limitations would be considered to be
demand deposits on which interest
could not be paid.
The definition of “savings deposit” is
also deleted from Regulation Q, and an
amended definition of that term is
contained in Regulation D. The
Regulation D definition also removes the
$150,000 limitation on business savings
accounts but treats a business telephone
transfer account authorizing more than
three telephone transfers per month as
“demand deposit.”
The Board’s rules regarding the
payment of interest are also set forth in
various Board interpretations and policy
statements and in staff opinions and
rulings. These amendments render many
of these interpretations, policy
statements, and staff opinions
unnecessary, and the Board will be
revising these positions accordingly.
Unless a contrary intent is evidenced in
the revised Regulations D and Q, until
the technical revisions are promulgated,
member banks may continue to rely
upon existing interpretations and
policies concerning the exceptions from
early withdrawal penalties, the use of
premiums, the payment of interest after
maturity of a deposit, and the grace
period for withdrawals without penalty
from an automatically renewable time
deposit after a rollover or maturity date.
Further, certain disclosure requirements
currently found in the related or revised
sections of the current Regulation Q are
retained in a new § 217.4.
2 Section 217.4 of this final rule retains the current
Regulatory Flexibility Analysis
requirement that a member bank disclose to the
customer the effect of any early withdrawal penalty.
The Regulatory Flexibility A ct (5
That section also retains the current requirement
U.S.C. 601 e t se q .) requires the Board to
that interest cannot be paid after a maturity date
unless the contrar* provides otherwise.
consider the impact of this proposal on
2
small entities. In this regard, it is the
Board’s view that the amendments will
not impose any additional reporting or
recordkeeping requirements. The
purpose of this rule is to simplify
Regulation Q and to remove obsolete
terms and conditions that affect the
payment of interest on deposits. The
rule applies to banks that are members
of the Federal Reserve System. It is
anticipated that this rule will have little
or no adverse effect on the ability of
small depository institutions to attract
deposits.
This rule removes existing regulatory
provisions, the authority for which
expires on March 31,1986 and amends
provisions to preserve current
requirements in light of the expiration of
other requirements. Consequently, the
Board finds good cause for
implementing this rule on April 1,1986,
which is within thirty days after the date
of publication.
List off Subjects m 12 CFR Part 217
Banks, banking, Federal Reserve
System, Interest on deposits.
Pursuant to its authority under section
19 of the Federal Reserve A ct (12 U.S.C.
461 et seq., 371a and 37lb), the Board is
amending Part 217 as follows:
PART 2 1 7 - [AMENDED!
1. The Authority citation for 12 CFR
Part 217 is revised to read.
A uthority: 12 U .S.C. 248, 371, 371a, 371b,
461.1828, a n d 3105, u n le s s o th e rw ise n o ted .
§§ 217.3, 217.4, 217.5, and! 217.7
[Removed]
2. Current §§ 217.3, 217.4, 217.5, and
217.7 of this Part are removed.
3. Current §§ 217.0 through 217.2 are
redesignated as §§ 217.1 through 217.3
and are revised to read:
§ 217.1
Authority, purpose, and scop®.
(a) A uthority. This regulation is issued
under the authority of section 19 of the
Federal Reserve A ct (12 U.S.C. 371, 371a,
371b, 481), section 7 of the International
Banking Act of 1978 (12 U.S.C. 3105), and
section 11 of the Federal Reserve A ct (12
U.S.C. 248), unless otherwise noted.
(b) Purpose. This regulation prohibits
the payment of interest on demand
deposits by member banks and other
depository institutions within the scope
of this regulation and sets forth
requirements concerning the
advertisement of interest on deposits by
member banks and these other
institutions,
(c) Scope. (1) This regulation applies
to state chartered banks that are
members of the Federal Reserve under
section 9 of the Federal Reserve Act (12
U.S.C. 321, et seq.) and to all national
banks. The regulation also applies to
any Federal branch or agency of a
foreign bank and to a State uninsured
branch or agency of a foreign bank in
the same manner and to the same extent
as if the branch or agency were a
member bank, except as may be
otherwise provided by the Board, if:
(1) Its parent foreign bank has total
worldwide consolidated bank assets in
excess of $1 billion;
(ii) Its parent foreign bank is
controlled by a foreign company which
owns or controls foreign banks that in
the aggregate have total worldwide
consolidated bank assets in excess of $1
billion; or
(iii) Its parent foreign bank is
controlled by a group of foreign
companies that own or control foreign
banks that in the aggregate have total
worldwide consolidated bank assets in
excess of $1 billion.
(2) For deposits held by a member
bank or a foreign bank, this regulation
does not apply to “any deposit that is
payable only at an office located outside
of the United States” [i.e., the States of
the United States and the District of
Columbia) as defined in § 204.2(t) of the
Board’s Regulation D— Reserve
Requirements of Depository Institutions
(12 CFR Part 20.4).
§217.2 Definitions.
For purposes of this part, the
following definitions apply unless
otherwise specified;
(a) “Demand deposit” means any
deposit that is considered to be a
“demand deposit” under § 204.2(b) of
the Board’s Regulation D— Reserve
Requirements of Depository Institutions
(12 CFR Part 204).
(b) “Deposit” means any liability of a
member bank that is considered to be a
“deposit” under § 204.2(a) of the Board’s
Regulation D— Reserve Requirements of
Depository Institutions (12 CFR Part
204).
(c) “Foreign bank” means any bank
that is considered to be a “foreign bank”
under § 204.2(o) of the Board's
Regulation D— Reserve Requirements of
Depository Institutions (12 CFR Part
204).
(d) “Interest” means any payment to
or for the account of any depositor as
compensation for the use of funds
constituting a deposit. A member bank’s
absorption of expenses incident to
providing a normal banking function or
its forbearance from charging a fee in
connection with such a service is not
considered a payment of interest.
§217.3
Interest
4. A new § 217.4 is added as follows:
§217.4 Miscellaneous.
(a) E arly w ithdraw al penalty. At the
time a depositor enters into a time
deposit contract with a member bank,
the bank shall provide a written
statement of the effect of any early
withdrawal penalty which shall (1) state
clearly that the customer has contracted
to keep the funds on deposit for the
stated maturity, and (2) describe fully
and clearly how such penalty provisions
apply to time deposits in such bank, in
the event the bank, notwithstanding the
contract provisions, permits payment
before maturity. Such statement shall be
expressly called to the attention of the
customer.
(b) P aym ent o f interest. On each
automatically renewable certificate,
passbook, or other document
representing a time deposit, the bank
shall have printed or stamped a
conspicuous statement indicating that
the contract will be renewed
automatically upon maturity and
indicating the terms of such renewal.
By o rd e r of the B o ard of G o v e rn o rs o f the
F e d e ra l R e se rv e S ystem , M arch 1 7 ,1 9 8 6 .
W illiam W . W iles,
Secretary of the Board.
[FR D oc. 8 6 -6 1 4 2 Filed 3 -1 9 -8 6 ; 8:45 am]
dlsmamd deposits.
No member bank of the Federal
Reserve System shall, directly or
indirectly, by any device whatsoever,
pay any interest on any demand
deposit.*
1
1 A member bank may continue to pay interest on
a time deposit for not more than ten calendar days;
(1) Where the member bank has provided in the
3
time deposit contract that, if the deposit or any
portion thereof is withdrawn not more than ten
calendar days after a maturity date (one business
day for "IBF time deposits" as defined in
§ 204.8(a)(2) of Regulation D), interest will continue
to be paid for such period; or (2) for a period
between a maturity date and the date of renewal of
the deposit, provided that such certificate is
renewed within ten calendar days after maturity.
@FedFRASER