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F E D E R A L R E S E R V E BANK
O F NEW YORK

C irc u la r N o. 8347
|__M ay 18 , 1 9 7 8

_

CO PY OF A M ENDM ENTS TO R E G U L A T IO N Q
Two New Types of Time Certificates

T o A ll M em ber B an ks, and O th e rs C on cern ed,
in th e S e c o n d F e d era l R e s e r v e D is tr ic t:

As

i n d i c a t e d in our

Bo a r d of Governors

C i r c u l a r No.

of the Federal Reserve

t o its R e g u l a t i o n Q,

of time

E n c l o s e d is
regarding the
lations




the

Supplement

authorize member banks

of eight years

certificates"

or more.

The

to
and

amendments

197 8 .
a copy of the

amendments

Department

to

1978,

amended the

deposits— "money market

long-term certificates with maturities
e f f e c t i v e J u n e 1,

d a t e d M a y 1 1,

S y s t e m has

"Interest on Deposits,"

offer two new categories

are

83^,

(Tel.

may be
No.

amendments

t o R e g u l a t i o n Q.

d i r e c t e d to. o u r C o n s u m e r A f f a i r s

Any

questions

and Bank Regu­

212-791-5919)*

P a u l A. V olcker ,

President.

Board of Governors of the Federal Reserve System
INTEREST ON DEPOSITS

AM ENDM ENTS TO REGULATION Q
(SU PPLE M E N T )
(effective June i, ip j8 )

Maximum Rates of Interest Payable
A G E N C Y : Board of Governors of the Fed­
eral Reserve System.
A C T IO N : Final Rule.
S U M M A R Y : The Board has amended its
regulations to authorize member banks to offer
to depositors two new categories of time de­
posits. The first new category permits member
banks to pay interest at a maximum ceiling
rate up to 7j4 Per cent on time deposits of
$1,000 or more with maturities of eight years
or more. The second new category established
by the Board authorizes member banks to pay
interest on nonnegotiable time deposits of
$10,000 or more with maturities of six months
(26 weeks) at a maximum rate equal to the dis­
count yield on the most recently issued sixmonth United States Treasury bills (auction
average).
E F F E C T IV E D A T E : June 1, 1978.
FOR
FURTH ER
IN F O R M A T IO N ,
C O N T A C T : Allen L. Raiken, Associate Gen­

eral Counsel, (202-452-3625) or Gilbert T.
Schwartz, Senior Attorney, (202-452-3623)
Legal Division, Board of Governors of the Fed­
eral Reserve System, Washington, D.C. 20551.
SU PPLEM EN TARY

IN F O R M A T IO N :

Effective June 1, 1978, the Board has amended
Regulation Q to establish two new categories
of time deposits. Under the provisions of the
first new deposit category, member banks will
be permitted to pay interest to depositors at a
maximum rate of 7J4 per cent on deposits of
$1,000 or more maturing in eight or more
years. This new deposit category should en­
able savers to obtain higher rates on their funds.
The second new deposit category established
by the Board authorizes member banks to pay
interest on nonnegotiable time deposits of
$10,000 or more with maturities of six months
(26 weeks) at a maximum rate equal to the dis­
count yield on the most recently issued sixmonth United States Treasury bills (auction
average). United States Treasury bills matur­

ing in six months (26 weeks) are auctioned
weekly by the Treasury Department, normally
on Monday, and are issued three business days
later, normally on Thursday. Beginning on the
date the six-month United States Treasury bills
are issued (normally on Thursday), member
banks may pay interest on deposits of $10,000
or more maturing in six months at a rate not
more than the auction average rate (discount
basis) established for such bills and may con­
tinue to pay that rate for new deposits until new
six-month United States Treasury bills are is­
sued, at which time the rate paid on such bills
becomes the ceiling rate for new deposits. The
six-month United States Treasury bill rate is
published widely in many newspapers through­
out the country.
The deposits must be issued in nonnegotiable
form and must possess a maturity of six months
(26 weeks). Maturities of more than six
months are not permitted. During the six
months the deposit remains outstanding, the
rate paid by member banks may not exceed the
ceiling rate in effect on the date of deposit. If
such deposits are renewed, automatically or
otherwise, the maximum rate that may be paid
may not exceed the six-month Treasury bill
rate (discount basis) in effect at the time of
renewal of the deposits.
Member banks will be permitted to pay up to
the average auction rate paid (discount basis).
Should a member bank desire to round off the
ceiling rate, such rate may only be rounded
down. For example, if the auction average rate
for six month Treasury bills is 6.4638 per cent
on a discount basis, a member bank may round
the rate to 6.463 per cent, 6.46 per cent or 6.4
per cent. The rate may not be rounded up.
However, in accordance with § 217.3 of Regu­
lation Q, in ascertaining the rate of interest
that may be paid, the effects of compounding of
interest may be disregarded and interest may
be computed in accordance with any of the
methods authorized by § 217.3(e) of Regula­
tion Q.
In accordance with § 217.4(d) of Regulation
Q (12 CFR 217.4(d)), if the deposit, or any

For this Regulation to be complete, retain:
1) Regulation Q pamphlet, effective December 4, 1975.
2) Amendments effective M arrh 1. 1976. July 26. 1976. November 8. 1976, March 24. 1977,
July 6, 1977, November 23, 1977, December 1,1977, July 6,1978, and November 1,1978.
3) Supplement effective December 4, 1975.
4) This slip sheet.
[Enc. Cir. No. 8347]




PRINTED IN NEW YORK

( over)

portion, is paid before maturity, the member
bank may pay interest on the amount with­
drawn at a rate not to exceed that prescribed
for savings deposits (currently 5 per cent) and,
in addition, a forfeiture of three months interest
at such rate is required. If the amount with­
drawn has been on deposit for three months or
less, all interest shall be forfeited. All member
banks, however, are permitted to lend on the
collateral of their time deposits so long as the
rate charged for the loan is at least one per cent
higher than the rate being paid on the deposit
pledged.
Existing provisions of Regulation Q provide
that member banks may pay interest on govern­
mental unit time deposits under $100,000 with
maturities of 30 days or more (12 CFR
217.7(d)) and Individual Retirement Account
and Keogh (H.R. 10) Plan deposits of less
than $100,000 with maturities of three years or
more (12 C F R 217.7(e)) at a rate not in ex­
cess of the highest of any of the permissible
rates that can be paid on time deposits under
$100,000 by any Federally insured commercial
bank, mutual savings bank, or savings and loan
association. Since the Federal Home Loan
Bank Board and the Federal Deposit Insurance
Corporation are taking action to establish a new
category of time deposit for Federally insured
savings and loan associations and mutual sav­
ings banks at a ceiling rate of 8 per cent, mem­
ber banks may pay 8 per cent on governmental
unit time deposits and IRA/Keogh time de­
posits with three year maturities. The higher 8
per cent may be paid only on new time deposits
or additional funds deposited to existing ac­
counts. Rates paid by member banks on funds
currently on deposit in governmental unit and
IRA/Keogh time deposits may not be increased
prior to the maturity of such funds. The maxi­
mum rates that may be paid on governmental
unit and IRA/Keogh time deposits will not be
determined by the ceiling rates established for
the new six-month $10,000 deposit category
whose ceiling rate is associated with the six
month Treasury bill rate.
The Board’s actions were taken at this time,
after consultation with the Federal Deposit In­
surance Corporation, the Federal Home Loan
Bank Board and the United States Department
of the Treasury, in order to increase returns
for savers by providing deposit categories that
are competitive with interest rates available in
the market on instruments possessing similar
characteristics. Creation of the new deposit cate­
gories at this time should increase the flow of
mortgage credit and assist the housing market.
In order to facilitate the achievement of these
objectives as rapidly as possible, the Board
finds that application of the notice and public
participation provisions of 5 U.S.C. § 553 to
these actions would be contrary to the public
interest and that good cause exists for making
the amendments effective in less than 30 days.
Text of Amendment
Pursuant to its authority under § 19(j) of
the Federal Reserve Act (12 U.S.C. § 371b),



effective June 1, 1978, the Board amends
§ 217.7 of Regulation Q (12 CFR 217.7) as fol­
lows :
SECTION 217.7 ( S U P P L E M E N T T O
R E G U L A T I O N Q)— M A X I M U M R A T E S
O F INTEREST P A Y A B L E B Y M E M B E R
B A N K S O N T I M E A N D SAVINGS
DEPOSITS
*

*

*

(b) Tim e deposits of less than $100,000.
*

*

*

(4)
Member banks may pay interest on
any time deposit of $1,000 or more, with a
maturity of eight years or more, at a rate not
to exceed 7% per cent.2
*

*

*

(d) Governmental unit tim e deposits of
less than $100,000. Except as provided in
paragraphs (a) and (f), no member bank
shall pay interest on any time deposit which
consists of funds deposited to the credit of, or
in which the entire beneficial interest is held
by, the United States, any State of the United
States, or any county, municipality, or politi­
cal subdivision thereof, the District of Colum­
bia, the Commonwealth of Puerto Rico, the
Virgin Islands, American Samoa, Guam, or
political subdivision thereof, at a rate in ex­
cess of the highest of any of the permissible
rates that can be paid on time deposits under
$100,000 with maturities in excess of six
months (26 weeks) by any Federally insured
commercial bank, mutual savings bank or sav­
ings and loan association.3
(e) Individual R etirem ent Account and
Keogh (H.R. 10J Plan deposits of less than
$100,000. Except as provided in paragraph

(a), a member bank may pay interest on any
time deposit with a maturity of three years or
more that consists of funds deposited to the
credit of, or in which the entire beneficial
interest is held by, an individual pursuant to
an Individual Retirement Account agreement
or Keogh (H.R. 10) Plan established pur­
suant to 26 U.S.C. (I.R.C. 1954) §§ 408, 401,
at a rate not in excess of the highest of any
of the permissible rates that can be paid on
time deposits under $100,000 with maturities
in excess of six months (26 weeks) by any
Federally insured commercial bank, mutual
savings bank, or savings and loan association.3
(f) Variable rate tim e deposits of less than
$100,000. Member banks may pay interest on
any nonnegotiable time deposit of $10,000 or
more, with a maturity of six months (26
weeks), at a rate not to exceed the rate estab­
lished (auction average on a discount basis)
for United States Treasury bills with maturi­
ties of six months issued on or immediately
prior to the date of deposit. Rounding such
rate to the next higher rate is not permitted.
2

***

3 The highest permissible rate is currently 8.00 per
cent per annum (12 CFR 329.7 and 12 CFR 526.5).