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FEDERAL RESERVE BANK OF NEW YORK [c irc u la r No. 8 3 6 8 1 June 7, 1978 REGULATION Q Board of Governors’ Order Extending the Applicability of 8% Interest Rate Ceiling to Both New and Outstanding IRA and Keogh Deposits To All Member Banks, and Others Concerned, in the Second Federal Reserve District: As indicated in our Circular No. 8363, dated May 31,1978, the Board of Governors of the Federal Reserve System has ruled that member banks may pay up to 8% interest on all Individual Retirement Account and Keogh Plan deposits (under $100,000) beginning June 1, 1978. Enclosed is a copy of the Board’s Order in this matter. Any questions thereon may be directed to our Consumer Affairs and Bank Regulations Department (Tel. No. 212-7915919). P a u l A. V o l c k e r , P re sid e n t. Board of Governors of the Federal Reserve System REGULATION Q SECTION 217.7 — MAXIMUM RATES OF INTEREST PAYABLE BY MEMBER BANKS ON TIME AND SAVINGS DEPOSITS (SUPPLEMENT TO REGULATION Q) Order Extending 8% Interest Rate Ceiling to Both New and Outstanding IRA and Keogh Deposits Maximum Rates of Interest Payable of Governors of the Federal Reserve System, Washing ton, D.C. 20551. AGENCY: Board of Governors of the Federal Reserve System. ACTION: Final Rule. SUM M ARY: In its Order dated May 11, 1978 (43 FR 21453), the Board announced an amendment to Regu lation Q, effective June 1, 1978, that permits member banks to offer to depositors two new categories of time deposits and provided that member banks may pay interest on Individual Retirement Account (IRA) or Keogh (H.R. 10) Plan time deposits under $100,000 at a rate not in excess of 8 per cent. The Board stated that the 8 per cent rate could be paid only on new time deposits or additional funds deposited to existing accounts on or after June 1 and that rates paid by member banks on funds currently on deposit in IRA/Keogh time deposits could not be increased prior to the maturity of such funds. After consideration of the operational problems member banks would face as a result of this decision, the Board has determined to permit member banks to pay the new 8 per cent rate, effective June 1, 1978, on any outstanding time deposits held in IRA or Keogh Plan accounts. EFFECTIVE DATE: June 1, 1978. FOR FURTHER INFORMATION, CONTACT: Gilbert T. Schwartz, Senior Attorney, (202-452-3623) or Anthony F. Cole, Attorney, (202-452-3711) Legal Division, Board SUPPLEM ENTARY INFORMATION: Effective June 1, 1978, the Board amended section 217.7 of Regulation Q (12 CFR 217.7) to establish two new categories of time deposits. Under the provisions of the first new deposit category, member banks are permitted to pay interest to depositors at a maximum rate of IVa per cent on deposits of $1,000 or more maturing in eight years or more. 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 26 weeks at a maximum rate equal to the discount rate (auction average) on the most recently issued six-month United States Treasury bills. In addition, the Board amended, effective June 1, 1978, the existing provisions of Regulation Q that provide that member banks may pay interest on Individual Retirement Account and Keogh (H.R. 10) Plan time deposits of less than $100,000 with maturities of three years or more (12 CFR 217.7(e)) 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 by any Federally insured commercial bank, mutual savings bank or savings and loan association. The provision was amended to provide that the rate paid on such time deposits shall be 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. For this Regulation to be complete, retain: 1) Regulation Q pam phlet, effective D ecem ber 4, 1975. 2) A m endm ents effective M arch 1, 1976, July 26, 1976, November 8, 1976, M arch 24, 1977, July 6, 1977, November 23, 1977, D ecem ber 1, 1977, June 1, 1978, July 6, 1978, and November 1, 1978. 3) Supplem ent effective Decem ber 4, 1975. 4) This slip sheet. PRINTED IN NEW YORK [Enc. Cir. No. 8368] (OVER) In this connection, the Board stated that since the Federal Home Loan Bank Board and the Federal Deposit Insurance Corporation were taking action, effective June 1, to establish a new category of time deposit with a maturity of eight or more years for Federally insured savings and loan associations and mutual savings banks at a ceiling rate of 8 per cent, member banks may pay 8 per cent on IRA/Keogh time deposits with maturities of three or more years. The Board further stated, however, that the new 8 per cent rate may be paid only on new time deposits or addi tional funds deposited to existing accounts, and that rates paid by member banks on funds currently on deposit in IRA/Keogh time deposits may not be increased prior to the maturity of such funds. The Board has now determined to permit member banks, effective June 1, to increase the rate of interest paid on existing IRA and Keogh Plan time deposit funds with original maturities of three years or more. The rate of interest paid on existing IRA and Keogh funds with maturities of less than three years may also be increased to 8 per cent, effective June 1, if the maturities of such obligations are extended to three years or more from the date of the increase in the rate of interest paid. The Board is taking this action on the basis of comments received which indicate that the Board’s earlier determination not to permit an increase in the rates of interest paid on outstanding IRA and Keogh funds would cause substantial and costly operational problems with no offsetting benefit to either banks or consumers. The Board stated, however, that its action should not be regarded as establishing a precedent and that should ceiling rates of interest be changed in the future, the Board may not necessarily permit the ceiling rate of interest payable on existing retirement savings to change. It is anticipated that this action will alleviate opera tional problems and will result in substantial public benefits by permitting existing retirement savers to obtain the most advantageous IRA and Keogh pro grams. In order to facilitate the achievement of these objectives and since this action relieves an existing regulatory restriction, the Board finds that application of the notice and public participation provisions of 5 U.S.C. § 553 to this action would be contrary to the public interest and that good cause exists for making this action effective in less than 30 days. The Board’s action is taken at this time, after consultation with the Federal Deposit Insurance Corporation and the Federal Home Loan Bank Board, pursuant to its authority under Section 19(j) of the Federal Reserve Act (12 U.S.C. § 371b).
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