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F E D E R A L R E S E R V E BA N K O F NEW YO RK rCircular No. 5 8 7 3 T L September 26, 1966 j NOTICE OF PROPOSED RULE MAKING Revised Definitions of “Time Deposits” and “Savings Deposits” in Regulations D and Q To A ll Banks, and Others Concerned, in the Second Federal Reserve D istrict: The following statement was made public September 23 by the Board of Governors of the Federal Reserve System: The B oard of Governors of the Federal Reserve System today announced proposed amendments to its Regulations D and Q ( “ Reserves of Member B anks” ; “ Paym ent of Interest on D eposits” ) designed to sharpen the technical distinctions between “ time deposits” and “ savings deposits.” A t present, deposits of individuals or certain nonprofit organizations as to which the depositor is required by the deposit contract to give notice in writing not less than 30 days before making a withdrawal may be either “ savings deposits” or “ time deposits” (tim e certificate of deposit or time deposit, open account). Under the new proposal, such a deposit could only be a “ time deposit.” The distinguishing feature o f “ sav ings deposits,” in this respect, would be the reservation by the bank o f the right to require 30 days’ notice of withdrawal. In practice, banks routinely reserve such a right, although it is rarely exercised. The proposal is also designed to make clear that a deposit payable on a specified date or at the expiration o f a specified period of time after the date o f the deposit (sometimes referred to as a “ fixed m atu rity” deposit) does not constitute a “ savings deposit.” Comments on the proposed amendments should be submitted by October 21, 1966. The text of the proposal, as submitted fo r publication in the Federal R egister, is attached. Additional copies of this circular w ill be furnished upon request. A lfred H ayes, President. and not operated for profit;4 or in which the entire beneficial interest is held by one or more individuals or by such a cor r 12 CFR Parts 204, 2 17 "1 poration, association, or other organiza [_ Regs. D , Q tion; and (2) with respect to which the depositor (e) Savings deposits .— The term “sav RESERVES O F MEMBER BANKS; PA Y is not required by the deposit contract ings deposit” means a deposit— MENT OF INTEREST ON DEPOSITS but may at any time be required by the (1) which consists of funds deposited bank to give notice in writing of an in Notice of Proposed Rule Making to the credit of one or more individuals, tended withdrawal not less than 30 days or of a corporation, association, or other before such withdrawal is made5 and The Board of Governors is considering organization operated primarily for re wrhich is not payable on a specified date amending Parts 204 and 217 as follows: ligious, philanthropic, charitable, educa or at the expiration of a specified time 1. Section 204.1(d) and (e) and tional, fraternal, or other similar purposes after the date of deposit. § 217.1(d) and (e) would be amended to 4 D eposits in join t accounts o f tw o or m ore read as follows: 2 D eposits, such as C hristm as club accounts individuals m ay be classified as savin g s deposits and vacation club accounts, which are m ade under if they m eet the other requirem ents o f th e above (d) Time deposits, open account.— The written contracts providing th a t no w ithdraw al definition, but deposits o f a partnership operated term “ time deposit, open account” means shall be m ade until a certain num ber o f periodic fo r profit m ay not be so classified. D eposits to deposits h ave been m ade during a period o f not the credit o f an individual of fun ds in w hich any a deposit, other than a “ time certificate of less than 3 m onths con stitu te “ tim e deposits, beneficial interest is held by a corporation, p a rt deposit” , with respect to which there is open account” even thou gh som e o f the deposits nership, association, or other organization oper are m ade w ithin 30 days from the end of the in force a written contract with the de ated for profit or not operated prim arily for period. religious, philanthropic, charitable, educational, positor that neither the wrhole nor any fraternal, or other sim ilar purposes m ay n o t be 3 A deposit with respect to which the bank part of such deposit may be withdrawn, classified as savin g s deposits. m erely reserves the righ t to require notice of not less than 30 days before any w ithdraw al is 5 T h e exercise by the bank o f its rig h t to re by check or otherwise, prior to the date of m ade is not a “ tim e deposit, open account” , quire such notice shall not cause th e deposit to maturity, which shall be not less than 30 w ithin the m eaning o f the above definition. cease to be a savin g s deposit. FEDERAL RESERVE SYSTEM J days after the date of the deposit,2 or prior to the expiration of the period of notice which must be given by the de positor in writing not less than 30 days in advance of withdrawal.3 ( over) 2 . F oo tn o te 7 in § 2 1 7 .2 ( b ) ( 2 ) w ould be redesignated footn ote 6 ; footn ote 8 in § 2 1 7 .3 (e ) w ould be redesignated fo o t note 7 . 3. Section 2 1 7 .5 w ould be am ended to read as f o llo w s : § 2 1 7 .5 W ithdraiual o f savin gs d ep o sits. ( a ) R eq u irem en ts regarding n otice o f withdrawal.— W h e th e r or n ot interest is p aid , no m em ber bank shall require notice o f w ithdraw al as to an y am ou nt or p e r centage o f the savin gs d ep osit o f an y de p ositor unless it shall sim ilarly require such notice as to the sam e am ount or percentage o f the savings deposits o f every other d ep ositor w hich are su bject to the sam e requirem ents as to notice o f w ithdraw al. I f a m em ber bank, w ithout requ irin g notice o f w ithdraw al, p a y s in terest that has accrued on a savin gs de p osit during the preceding interest period, it shall, u p on request and w ithout re qu irin g such notice, p a y in the sam e m anner interest that has accrued during the preceding interest period on the sav ings deposits o f every other depositor. N o m em ber bank shall change its practice w ith respect to requ iring notice o f w ith draw al o f savin gs deposits f o r the p u r pose o f d iscrim inatin g in fa v o r o f or again st a n y d ep ositor or depositors, and no such change o f practice shall be made except p ursu ant to du ly recorded action o f the bank’s board o f directors or a p ro p e rly authorized com m ittee thereof. ( b ) L oa n s on sec u rity o f savings d e p o sits.— I f it is not the practice o f a m em ber bank to require notice o f w ithdraw al o f savings d ep osits, no restrictions are im posed b y this p a rt u p on loans b y such bank to its depositors u p on the security o f such d ep osits. I f it is the practice o f a m em ber ban k to require notice o f w ith draw al o f a savings d eposit, such bank m a y m ake loans to a d ep ositor u p on the security o f such d ep osit, but the rate o f interest on such loans shall be n ot less than 2 p er cent p er annum in excess o f the rate o f interest p aid on the savings deposit. 3. S u b p aragrap h s ( 2 ) , ( 3 ) , and ( 4 ) o f present § 2 1 7 .1 (e ) w ould be transferred to § 2 1 7 .5 and become p a ra g ra p h ( c ) o f that section, w ith redesignation o f such su bp arag ra p h s as su bp arag ra p h s (1 ), ( 2 ) , and ( 3 ) respectively, w ith co n fo rm in g changes in cross-references w ithin such su bp arag ra p h s, and w ith red esigna tion o f p resent footn ote 5 as footn ote 8. # * * # # The p u rp ose o f these am endm ents is to sharpen the distinction between savings deposits and tim e deposits in order to facilitate interpretation and ad m inistra tion o f the R egu lation s. The R egulations are not entirely clear whether certificates or other instrum ents that are p ayable at a “ fixed” m atu rity (i.e ., at a specified date or at the exp iration o f a specified period a fte r the date o f d e p o sit), which meet the definition o f a “ tim e certificate o f deposit” , m a y nevertheless be classified as savings deposits. A ls o , under the present R egulations, “ savings d eposits” are defined as deposits o f individuals and certain types o f n on profit organizations as to which the de p ositor “ is required, or m ay at any time lie required, b y the bank to give notice in w ritin g o f an intended w ithdraw al not less than 30 days b efore such w ithdraw al is m ade.” B ecause this definition includes a deposit o f an individual as to which at least 30 d ays’ w ritten notice o f w ith draw al is required b y the deposit contract, an individual is literally precluded from having a “ tim e deposit, open account” . The definition o f that term includes de posits as to which not less than 30 d ay s’ written notice o f w ithdraw al is required, and exp ressly excludes any deposit that meets the definition o f a savings deposit. The proposed am endm ents to the R e g u lations w ould am end the definition o f sav ings deposit so that— (1 ) deposits p ayable on a specified date or at the expiration o f a specified period o f tim e a fte r the date o f deposit would be exp ressly excluded fro m savings d ep o sits; (2 ) deposits as to which notice o f w ith draw al is required b y the contract w ould be excluded fro m savings deposits, but the exercise o f a bank ’s reserved right to re quire such notice w ould not cause a sav ings deposit to cease to be such. Because the definitions o f “ tim e deposit, open account” and “ savings d eposits” would no longer overlap, the exception fro m the definition o f “ tim e deposit, open account” o f a “ savings deposit” w ould be elim inated. Because a savings deposit con tract could no longer contain a provision requiring the depositor to give notice o f w ithdraw al, the p rovisions o f R egulation Q with respect to the requirem ents o f notice in connection w ith contracts con taining such a p rovision w ould also be elim inated. In doing so, the section re lating to notice o f w ithdraw al o f savings deposits w ould be editorially revised, and su bp aragraph s ( 2 ) , ( 3 ) , and ( 4 ) o f the present $ 2 1 7 .1 ( e ) , which relate to the manner o f p aym ent o f savings deposits, w ould be transferred thereto. This notice is published p ursuant to section 5 5 3 ( b ) o f title 5 , U nited States Code, and section 1 ( b ) o f the R ules o f Procedure o f the B o ard o f G overnors o f the F ed era l R eserve System (1 2 C F R 2 6 2 .1 ( b ) ) . T o aid in the consideration o f this m at ter b y the B o ard , interested persons are invited to subm it relevant data, view s, or argum ents. A n y such m aterial should be subm itted in w riting to the Secretary, B oard o f G overnors o f the F ed era l R e serve S ystem , W a sh in g to n , D . C ., 2 05 5 1, to be received not later than October 2 1, 1 96 6 . D ated at W a sh in g to n , D . C ., this 21st day o f Septem ber, 1 96 6 . B y order o f the B o ard o f Governors. M e r r it t Sherm an, S ecr eta ry .
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