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FE D E RA L R E SER VE BANK O F NEW YORK r Circular N o . 4 9 6 0 T L N o v e m b e r 10. 1 9 6 0 J PAYMENT OF INTEREST ON DEPOSITS Absorption of Exchange Charges To A ll M em ber B anks o f the Second Federal R eserve D istrict: On August 4,1960, the Board of Governors of the Federal Reserve System issued an interpretation on absorption of exchange charges as payment of interest on deposits, the text of which was set forth in our Circular No. 4922, dated August 8. On November 8, 1960, the Board issued the following modifying interpretation: In an in terp reta tion o f A u g u s t 4, 1960, p u blish ed at p. 858 o f the A u g u st 1960 F ed era l R eserve B ulletin, the B oa rd expressed the op in io n that a n y absorp tion b y m em ber banks o f exch ange charges w ou ld con stitute the p a ym en t o f in terest on d em an d deposits, in clu d in g an arrangem ent w h ereby a m em ber bank m aintain ed a balance w ith another ban k in retu rn fo r w h ich such oth er bank d ire ctly or in d ire ctly absorbed fo r it exch ange charges m ade by draw ee banks. The B o a rd has been asked to recon sid er the a p p lica tio n o f the in terp reta tion in certain situations said to in v olv e rela tiv ely sm all am ounts o f exchange ch arges an d those w here the cost o f collection is said to exceed the am ount o f the charges. The B oa rd o f G overn ors, the C om p troller o f the C u rren cy , an d the F e d era l D ep osit In su ran ce C orp ora tion have d e cid ed to undertake a stu d y to obtain a d d ition a l in form a tion . In con n ection therew ith, a su rvey w ill be m ade o f a n u m ber o f in stitu tions in each F ed era l R eserve D istrict on a spot-check basis. F u rth e r con sid eration w ill be g iv en the su b je ct in the lig h t o f the findings o f the survey. In the m eantim e, an d as a ten tative au th orization, to be ap p lica b le o n ly d u rin g the p en den cy o f the stu d y an d the rea ch in g o f a final determ in ation , m em ber banks are authorized to absorb exchange charges in am ounts a g g reg a tin g n o t m ore than $ 2 fo r an y one d ep ositor in an y calen dar m onth or any re g u la rly established p eriod o f 30 days. M em ber banks, both S tate an d national, w ill be exp ected to co n fo rm to the A u g u st 4, 1960 in terp reta tion as h erein m odified. The interpretation quoted above will be published in the Federal Register and in the Federal Reserve Bulletin. A lfred H ayes, President.
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