The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
F E D E R A L R E S E R V E BANK
O F N EW YO R K
(""circular No. 6620~|
|_O ctober 19, 1970_J
P R O P O SE D AMENDMENTS TO REGULATION Q
Computation of Interest on Time D e p o s i t s
T o A l l M em b er B a n k s , a n d O th e r s C o n c e r n e d ,
in th e S e c o n d F e d e r a l R e s e r v e D i s t r i c t :
P rinted below is an excerpt from the F ederal R egister of October 17, containing the text
of proposed amendments to Regulation Q designed to perm it m em ber banks to compute simple
daily in te re st and in te re st compounded daily or continuously by using 360 or 365 as the de
nom inator of a fraction in which the num erator generally is the actual num ber of days the
deposit earn s in tere st. Comments on the proposed amendments should be submitted by No
vem ber 16 and may be sent to the Board of Governors through our Bank Reports and Analysis
Departm ent.
Additional copies of this circu lar will be furnished upon request.
Alfred Hayes,
P resident.
FEDERAL RESERVE SYSTEM
[ 12 C F R
P art 2 1 7 1
[Reg. Q]
IN T E R E S T O N D E P O S I T S
M e t h o d s o f C o m p u t i n g In te re s t
T h e B o a rd of G o v e rn o rs p ro p o ses to
a m e n d R e g u la tio n Q, In th e follow ing
re sp e c ts:
(1) B y c h a n g in g § 217.3(e) to re a d :
§ 2 1 7 .3
In terest
dep osits.
*
*
on
*
lim e
and
*
savings
*
(e) C o m p u t a t i o n o f i n t e r e s t o n t i m e
d e p o s i ts . I n th e c o m p u ta tio n of sim p le
d aily in te re st, th e tim e fa c to r sh o u ld be
ex p ressed as a fr a c tio n in w h ic h th e
a c tu a l n u m b e r of days th e fu n d s a re on
d ep o sit is th e n u m e ra to r, a n d th e d e
n o m in a to r is e ith e r 360 o r 365. W h e n a
tim e d ep o sit m a tu re s in 1 m o n th (o r
m u ltip le s th e r e o f), th e b a n k m a y use 30
d ay s in th e n u m e r a to r (o r c o rre sp o n d in g
m u ltip le s th e r e o f).
§ 2 1 7 .6
[A m en d ed ]
(2) By d e letin g th e la s t s e n te n c e of
§ 217.6 (b).
T h e effect of th e p ro p o sed a m e n d m e n ts
c a n b est be view ed in th e lig h t of th e
m e th o d s of c o m p u tin g in te re s t p re s e n tly
p e rm itte d .
a. T h e m a x im u m r a te o f sim p le in
te r e s t t h a t a m em b er b a n k m a y p a y o n
a d ep o sit is e sta b lish e d by § 217.7. In
J a n u a r y 1970, th e B o a rd e sta b lish e d
c e r ta in r a te s on d ep o sits w ith a m a tu rity
of “ 1 y e a r o r m o re ” . T o q u a lify fo r a
r a te t h a t m ay be p a id on su c h a dep o sit,
th e d ep o sit m u s t n o t m a tu re b e fo re 1
fu ll y e a r— 365 o r 366 d a y s as th e case
m ay be— fro m th e d a te of dep o sit.
b. T h e fo rm u la fo r c o n tin u o u s c o m
p o u n d in g is A = P e RN, w h ere A is th e
fin a l a m o u n t, P is th e a m o u n t o n w h ich
in te r e s t is co m p o u n d ed , e is th e b ase fo r
N a p e ria n o r n a tu r a l lo g a rith m s, R is th e
n o m in a l ra te , a n d N is th e n u m b e r of
y ea rs. A t th e p re s e n t, in view of th e i n
te n t o f § 2 1 7 .3 (e ), in ex p re ssin g th e n u m
b e r of years, th e n u m e r a to r is th e a c tu a l
n u m b e r of d ay s th e fu n d s a re on d e
p o sit— e x cep t if th e g race p erio d s of
§ 217.3(e) a p p ly — a n d th e d e n o m in a to r
m u s t be 365. I f th e p ro p o sed a m e n d m e n t
is a d o p ted , th e d e n o m in a to r co u ld be
e ith e r 360 o r 365. T h is w ould be c o n sist
e n t w ith § 2 1 7 .3 (a), w h ich p ro v id es t h a t
th e effects of co m p o u n d in g m ay be d is
re g a rd e d in d e te rm in in g w h e th e r a m e m
b e r b a n k is p a y in g in te re s t in excess of
th e ra te s e sta b lish e d in § 217.7. F o r
ex am p le, on a d ep o sit m a d e on F e b ru
a ry 1 fo r 1 m o n th th e tim e e le m e n t could
be ex p ressed as 30/360 o r 30/365 r a th e r
th a n 28/360 o r 28/365.
c. T h e fo rm u la fo r o th e r th a n c o n tin u o u s co m p o u n d in g is
a
=
p
( l + R) N,
M
w h ere A is th e fin al a m o u n t, P is th e
a m o u n t o n w h ic h in te re s te d is co m
p o u n d ed , R is th e n o m in a l ra te , M is
th e n u m b e r of co m p o u n d in g p erio d s in a
y e a r, a n d N is th e a c tu a l n u m b e r of
p erio d s fo r w h ich in te re s t is co m pounded.
A t p re s e n t, w h e n co m p o u n d in g in te re s t
d aily , th e n u m b e r of co m p o u n d in g p e
rio d s in a y e a r m u s t be 365. A gain, if th e
p ro p o sed a m e n d m e n t is ad o p ted , th e
d e n o m in a to r co u ld be e ith e r 360 o r 365.
F o r ex am p le, a b a n k co u ld co m p o u n d 5
p e rc e n t in te re s t d aily on a $10,000 d e
p o sit fo r 91 d ay s in a cc o rd a n c e w ith
e ith e r of th e follow ing:
A=$10,000 (1 + 0.05) <«») or $10,127.20;
360
or
A=$10,000(l+0.05)<»» or $10,125.40.
365*
d. T h e fo rm u la fo r c o m p u ta tio n of
sim p le in te re s t is A = P R T , w h e re A is
th e fin al a m o u n t, P is th e a m o u n t on
w h ic h in te re s t is co m p u ted , R is th e
n o m in a l ra te , a n d T is th e tim e perio d .
I n s ta tin g th e tim e p erio d § 217.3(e)
p re s e n tly a u th o riz e s (1) th e use o f 360
in th e d e n o m in a to r only w ith re sp e c t to
dep o sits of 30 d ay s o r m u ltip les th ereo f,
a n d (2) th e use of 30 (a n d m ultiples
th e re o f) in th e n u m e r a to r o n a dep o sit
fo r 1 m o n th (o r m u ltip le s th e r e o f).
T h e pro p o sed a m e n d m e n t w ould (1) a u
th o riz e th e use of 360 as th e d e n o m in a
to r fo r a n y deposit, a n d (2) c o n tin u e th e
p re s e n t p ra c tic e of a u th o riz in g a b a n k
to co n sid er 1 m o n th as 30 days. F o r ex
am p le, a b a n k w ould be p e rm itte d to
co n sid er th e tim e fa c to r fo r sim ple daily
in te re s t on a 365-day d ep o sit as 365/360
o r 365/365. O n a 3 60-day deposit, th e
fa c to r co u ld be 360/360 o r 360/365; i t
could n o t be 365/360. T h e p re s e n t p ro
visions fo r te c h n ic a l g rac e periods a re
deriv ed fro m th e c u rr e n t re q u ire m e n t fo r
365 in th e d e n o m in a to r fo r deposits w ith
m a tu ritie s o f o th e r th a n 30 days, o r
m u ltip le s th e re o f. S in ce th e proposed
a m e n d m e n t w ould a u th o riz e th e use of
360 in th e d e n o m in a to r on a ll deposits,
th e re fe re n c e s to su c h g ra c e p erio d s in
th e c a p tio n o f § 217.3(e), a n d In th e
th ir d se n te n c e of § 217.6(b) w ould be
deleted.
T o a id in th e c o n sid e ra tio n of th is
m a tte r by th e B o a rd , in te re s te d p erso n s
a re in v ite d to su b m it re le v a n t d a ta ,
views, o r a rg u m e n ts. A ny su c h m a te ria l
sh o u ld be s u b m itte d in w ritin g to th e
S e c re ta ry , B o a rd o f G o v ern o rs of th e
F e d e ra l R eserv e S y stem , W a sh in g to n ,
D.C. 20551, to be receiv ed n o t la te r th a n
N ovem ber 16, 1970. S u c h m a te ria l will
be m ad e a v a ila b le fo r in sp e c tio n a n d
copying u p o n req u est, e x cep t as pro v id ed
in § 261.6(a) o f th e B o a rd ’s ru les re g a r d
in g a v a ila b ility of in fo rm a tio n .
By o rd e r o f th e B o a rd of G overnors,
O cto b er 12, 1970.
[s e a l ]
K
A. K e n y o n ,
D e p u ty S e c r e ta r y .
enneth
[F.R. Doc. 70-14012; Piled, Oct. 16, 1970;
8:46 a.m.]
@FedFRASER