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FEDERAL RESERVE BANK OF N EW YORK N o. 7 1 9 6 1 LC ircular July 26, 1973 J REGULATION Q — Limits on “No Ceiling” Certificates of Deposit — Proposed Amendment on Disclosure of Early Withdrawal Penalty To A ll M ember Banks, and Others Concerned, in the Second Federal Reserve District: Following is the text o f a statement issued today by the Board o f Governors o f the Federal Reserve System: The Board of Governors of the Federal Reserve System today imposed limits on the amount of “ no-ceiling” consumer-type certificates of deposit that may be issued by member banks. On July 5, the Board increased the maximum rates o f interest that member banks may pay on savings and other consumer-type deposits, and established a new category o f time deposit on which member banks may pay any rate of interest they desire so long as the deposit matures in four years or more and has a minimum denomination of $1,000. In order to provide for the introduction o f these new savings instruments at a more orderly pace, the Board today limited the amount of such certificates that a bank may issue to 5 per cent of its total time and savings deposits. Any such certificate that a bank sells beyond that amount will be subject to the existing interest rate ceiling o f 6.5 per cent that applies to time deposits maturing in 2-1/2 years or more. Savings and loan associations that are members of the Federal Home Loan Bank System are also subject to a limitation o f 5 per cent total savings capital on issuance o f the new type certificates. At the same time, the Board invited comment by August 27 on a proposal that would require member banks to: 1. Provide a clear and conspicuous notice in bank advertising that Federal law and regulation prohibit the bank from redeeming a time deposit before maturity unless some payment of interest is forfeited. 2. Give to each bank customer who is making a time deposit a disclosure statement specifying that the customer has contracted to keep funds on deposit for a fixed period of time and describing how the early withdrawal penalty applies to time deposits. This statement would contain arithmetical examples illustrating how the penalty provisions would work. The text o f the proposed amendment to Regulation Q , on the advertising and disclosure o f the penalty for early withdrawal o f time deposits, will be sent to you shortly. Comments thereon should be submitted by August 27 and may be sent to our Regulations and Bank Analysis Department. ALFRED HAYES, President.
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