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FEDERAL RESERVE BANK O F N EW Y O R K Circular No. O 8 4 O "1 July 26, 1966 J Interpretations of Regulation Q by Board of Governors To A ll M em ber Banks, and Others Concerned, in the Second Federal Reserve D istrict: Printed below is a copy of a statement issued by tlie Board of Governors of the Federal Reserve System containing interpretations of the Supplement to Regulation Q, as revised effective July 20, 1966, regarding maximum rates of interest payable by member banks on multiple maturity time deposits. The statement w ill be published shortly in the Federal Register and Federal R eserve Bulletin, but it is being sent to you now so that you may have prompt notice of its content. A lfred H ayes, President. Maximum Interest Rates on M ultiple Maturity Tim e Deposits The Board has considered the follow ing questions regarding the interpretation of the Supplement to Regulation Q, as revised July 20, 1966, relating to maximum rates o f interest payable by member banks on time and savings deposits: 1. Under the Supplement, a member bank may pay interest at a rate not exceeding 5 per cent on a multi ple maturity time deposit made on or after July 20 which is payable only 90 days or more after the date of deposit or 90 days or more after the last preceding date on which it might have been p a id ; and it may pay interest at a rate not exceeding 4 per cent on a multi ple maturity deposit which is payable less than 90 days after the date of deposit or less than 90 days after the last preceding date on which it might have been paid. A ccordingly, if a deposit is payable, at the de p ositor’s option, either after 90 d ays’ notice or after 30 days’ notice, the maximum interest rate permitted under the Supplement is 4 per cent, whether the deposit is paid after 90 days’ or 30 days’ notice. In this respect, the revised Supplement makes inappli cable previous interpretations o f the Board (e.g., 1953 Federal Reserve Bulletin 721) to the effect that, if a deposit has alternative maturities, the maximum inter est rate depends upon the alternative actually elected by the depositor. 2. Question has been raised as to the applicability o f the revised Supplement to time deposits, open account, under contracts entered into prior to July 20, 1966. As stated in the revised Supplement, the 5 per cent and 4 per cent maximum rates apply to multiple m aturity time deposits received on or after July 20, 1966. If, as is usually the case, a contract evidencing a time deposit, open account, provides that the con tract may be cancelled or terminated by the bank or that the rate of interest is subject to change by the bank on its own initiative or in order to com ply with regulations of the Board, the bank must take action as soon as possible to bring the contract within the requirements of the revised Supplement with respect to deposits received on or after July 20, 1966. In this connection, attention is called to section 217.3(b) o f Regulation Q, which provides that “ every member bank shall take such action as may be necessary, as soon as possible consistently with its contractual obli gations, to bring all of its outstanding certificates of deposit or other contracts into conform ity with the provisions” o f Regulation Q. Only in the rare case in which a contract entered into prior to July 20, 1966 obligates the bank to accept deposits in the account and pay a specified rate of interest thereon, without any right to m odify such obligations, may the bank pay the contract rate o f interest on deposits received a fter that date if such rate is higher than the maxi mum rate prescribed by the Supplement for the par ticular type of multiple m aturity deposit. 3. Question has been raised as to whether a certifi cate o f deposit issued prior to July 20, 1966, providing for automatic renewal every 90 days and specifying a 5 per cent interest rate, may be amended after that date to provide fo r an interest rate in excess of 5 per cent. W ith respect to deposits received before July 20, 1966, the Supplement permits continued payment of interest at the rate being paid on that date, but it pre cludes any increase in the rate on such deposits above the maximum prescribed for deposits received on or after that date. A ccordingly, the bank could not, under the revised Supplement, p ay interest at a rate in excess o f 5 per cent on or after J u ly 20. (This principle applies also to time deposits, open account.) 4. Interest credited after July 20, 1966 on multiple m aturity time deposits received before that date need not be regarded as a “ deposit” received on or after that date but may be assimilated into the underlying pre-July 20 deposits, on which the bank may continue to pay the rate of interest specified in the contract.
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