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FEDERAL RESERVE BANK
OF NEW YORK

r Circular No. 1 7 3 5 , February 11, 19371
L
Reference to Circular No. 1731

REGULATION Q OF THE BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
RELATING TO THE PAYMENT OF INTEREST ON DEPOSITS
Amendment Effective February 11,1937

To All Member Banks in the
Second Federal Reserve District:

In our Circular No. 1731, dated January 30, 1937, you were advised that the
Board of Governors of the Federal Reserve System had deferred until May 1, 1937
the date upon which subsection (/) of section 1 of its Regulation Q relating to the
payment of interest on deposits would become effective.
We have now been advised by the Board that it has adopted the following resolution amending Regulation Q:
Be it resolved, That, effective February 11, 1937, Regulation Q entitled "PAYMENT OF INTEREST ON DEPOSITS", as adopted to become effective January 1,
1936, is amended by striking out subsection (/) of section 1 thereof and by inserting
after the first sentence of subsection (a) of section 2 thereof the following sentence:
Within this regulation, any payment to or for the account of any
depositor as compensation for the use of funds constituting a deposit shall
be considered interest.




The Board has released, for publication on Friday, February 12, 1937, the following joint statement of the Board of Governors of the Federal Reserve System and the
Federal Deposit Insurance Corporation:
In view of widespread differences of opinion in the law-making and administrative
branches of the Government as to the intent of the law and as a result of further
consultations between the Federal Deposit Insurance Corporation and the Board of
Governors of the Federal Reserve System, their respective regulations relating to
the payment of interest on demand deposits have been brought into uniformity by
amendments adopted by the Board and by the Corporation.
The definition of "interest" has been eliminated from Regulation Q of the Board
and from Regulation IV of the Federal Deposit Insurance Corporation and paragraph
(a) of section 2 of each regulation has been amended by inserting after the first
sentence the following: "Within this regulation, any payment to or for the account
of any depositor as compensation for the use of funds constituting a deposit shall be
considered interest.''
The effect of these amendments is to declare existing law rather than to interpret
and apply the law to particular practices. This will permit the general application
by each agency of a uniform law and a determination of specific cases based upon the
facts involved. It will also permit each agency to determine, with respect to cases
coming before it, whether or not any practice involved in any such cases is a "device"
within the meaning of the statute employed by the banks to evade the prohibition
of the law.
The Board of Governors, in its original definition of the term "interest"
[section 1 ( / ) ] , specified that such term should include the payment or absorption
of exchange or collection charges which involve out-of-pocket expenses. The present
action of the Board of Governors removes this finding or specification from its
regulation.
Henceforth under both regulations the question of what in a particular case is
a payment of interest upon a demand deposit or a device to evade the prohibition
against the payment of such interest, becomes, for both agencies, a matter of administrative determination under the general law in the light of experience and as specific
cases may develop.

Additional copies of this circular will be furnished upon request.




GEORGE L. HARRISON,

President.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102