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F E D E R A L R E S E R V E BAN K O F N EW Y O R K f Circular No. 5 8 3 4 1 t July 15,1966 J Lower Maximum Rates o f Interest Under Regulation Q on New M ultiple Maturity Tim e Deposits Effective July 20, 1966 To All M em ber Banlcs, and Others Concerned, in the Second Federal Reserve D istrict: Following is the text of a statement issued today by the Board of Governors of the Federal Reserve System: The Board o f Governors o f the Federal Reserve System today lowered the maximum rate that the System’s member banks may pay henceforth on those time deposits that have m ultiple maturities. A t the same time, the Board asked Congress fo r broader authority — fo r itself, the Federal Deposit Insurance Corporation, and the Federal Home Loan Bank Board — than is now available to govern the rate practices o f banks and savings and loan associations. The purpose o f both steps is to help forestall excessive interest rate com petition among financial institutions in conditions, such as those now existing, when monetary p olicy is aimed at curbing the rate o f expansion o f bank credit. The action taken under present legislative authority prescribes, effective J u ly 20, 1966, a maximum rate o f 5 per cent on new multiple m aturity deposits o f 90 days or more, and 4 per cent fo r those o f less than 90 days. Outstanding multiple m aturity deposits will not be affected b y the lower maximum rates. Previously, member banks were authorized to p ay as high as 5 % per cent on m ultiple m aturity time deposits. The term “ multiple m aturity time deposit” is defined in the B oa rd ’s Regulation Q as: “ A n y time deposit (1 ) that is payable at the depositor’s option on more than one date, whether on a specified date or at the expiration o f a specified time after the date o f deposit (e.g., a deposit payable at the option o f the depositor either three months or six months after the date o f deposit), (2 ) that is payable after written notice o f withdrawal, or (3 ) with respect to which the underlying instrument or contract or any inform al understanding or agreement provides fo r automatic renewal at m aturity.” No change was made in the ceilings respecting time deposits having a single m aturity (now set at 51/2 per cent) or passbook savings accounts (now set at 4 per cen t). Prom pt consideration o f the legislative proposals to broaden the rate regulatory powers o f the three supervisory agencies was asked b y the B oard in letters to the chairmen o f the Senate and House Banking and Currency Committees. These proposals would empower the three supervisory agencies to prescribe different rate limitations fo r different classes o f accounts, fo r accounts o f different amounts or with different maturities or subject to different conditions regarding withdrawal or repayment, according to the nature or location o f the institutions or the account holders or on any other reasonable basis. In the letters to the congressional committee chairmen, the Reserve B oard pointed out that its action today under its present powers would cover only “ consumer ty p e ” certificates o f deposits ( “ C D ’s ” ) in member banks. “ Separate ceilings are imposed on ‘ multiple m aturity’ deposits in an effort to differentiate between money market C D ’s and consumer-type deposits,” the B oard said. “ Obviously, the ‘m ultiple m aturity’ concept is not ideally suited fo r this purpose, but it is, in our judgm ent, the best alternative available under existing law. It may be that the only effective means fo r accom plishing the purposes we seek in the current situation is to differentiate on the basis o f amount o f deposit, even though, as you know, the Board has reservations about such an approach except as a tem porary expedient. A ccordin gly, we hope that your Committee will give prom pt consideration to broadening the existing law as proposed in the enclosed draft. “ A t the same time, we doubt the efficiency o f attempting to prevent a rate war b y lim iting rates payable only by banks. The draft legislation therefore includes authority fo r imposition o f rate ceilings by the Federal Home Loan Bank Board. Under the proposal, ceilings fo r both banks and savings and loan associations would not be mandatory, but could be imposed or placed on a stand-by basis b y the appropriate agency, after consultation with the others, in the light o f existing conditions.” Enclosed are copies of the Amendment and Supplement to Regulation Q, giving effect to the Board’s action. Additional copies of this circular and the enclosures will be furnished upon request. A lfred H ayes, President, PAYM EN T OF INTEREST ON DEPOSITS AM EN DM EN T TO R E G U L A T IO N Q I ssu ed b y t h e B oard of G o ver n or s of t h e F ed er a l R eser ve S y s t e m Effective J u ly 20, 1966, section 217.1 is amended by inserting a new paragraph (g ) as follow s: (g ) M ultiple maturity time deposit.— The term “ multiple ma turity time deposit” means any time deposit (1 ) that is payable at the depositor’s option on more than one date, whether on a specified date or at the expiration o f a specified time after the date o f deposit (e.g., a deposit payable at the option o f the depositor either three months or six months after the date o f deposit), (2 ) that is payable after written notice o f withdrawal, or (3 ) with respect to which the underlying instrument or contract or any inform al understanding or agreement provides fo r automatic renewal at maturity. P R IN T E D IN N E W YO R K SUPPLEMENT TO REGULATION Q SEC T IO N 217.6 M A X IM U M RA TE S OF IN TE R E ST P A Y A B L E ON TIM E AN D SAVINGS DEPOSITS B Y M EM BER BANKS I ssu e d b y t h e B oard of G o v er n o r s of t h e F e d e r a l R eser ve S y s t e m : Effective July 20, 1966 Pursuant to the provisions o f section 19 o f the Federal Reserve A ct and § 217.3, the Board o f Governors o f the Federal Reserve System hereby prescribes the follow ing maximum rates1 o f interest payable by member banks o f the Federal Reserve System on time and savings d eposits: (a) Tim e deposits.— (1 ) No member bank shall pay interest accruing at a rate in excess o f 5^ per cent per annum, com pounded quarterly,2 regardless o f the basis upon which such interest may be computed, on any time deposit, subject, however, to the provisions o f subparagraphs (2 ) and (3 ) o f this paragraph. (2 ) No member bank shall p ay interest accruing at a rate in excess o f 5 per cent per annum, com pounded quarterly,2 regardless of the basis upon which such interest may be computed, on any multiple m aturity time deposit received on or after July 20, 1966, which is payable only 90 days or more after the date o f deposit or 90 days or more after the last preceding date on which it might have been paid. (3 ) No member bank shall pay interest accruing at a rate in excess o f 4 per cent per annum, com pounded quarterly,2 regardless o f the basis upon which such interest may be computed, on any multiple m aturity time deposit received on or after J u ly 20, 1966, which is payable less than 90 days after the date o f deposit or less than 90 days after the last preceding date on which it might have been paid. (b ) Savings deposits.— No member bank shall pay interest accru ing at a rate in excess o f 4 per cent per annum, com pounded quar terly,2 regardless o f the basis upon which such interest may be com puted, on any savings deposit. 1 The maximum rates of interest payable by member banks of the Federal Reserve System on time and savings deposits as prescribed herein are not applicable to any deposit which is payable only at an office of a member bank located outside of the States of the United States and the District of Columbia. 2 This limitation is not to be interpreted as preventing the compounding of interest at other than quarterly intervals, provided that the aggregate amount of such interest so compounded does not exceed the aggregate amount of interest at the rate prescribed when compounded quarterly. P R IN T E D IN N E W YO RK
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