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FEDERAL RESERVE BANK OF NEW YORK SjI [circular No. 8763 [February 27. 1980 80 A M E N D M E N T TO R E G U L A T IO N Q L im itation on the R ate of In terest T h at M ay B e P aid on 2 -1/2-Y ear F ix e d Rate V ariab le C eilin g T im e D eposits To A ll M e m b e r 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 : The following statement has been issued today announcing action by the Federal agencies regulating depository institutions imposing a limitation on the rate of interest that may be paid by depository institutions on 2-1/2-year fixed rate variable ceiling time deposits: A lim itation on the rate of interest th at may be paid on 2-1/2-year variable ceiling tim e deposits was announced today by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Federal Home Loan Bank Board, and the National C redit Union A dm inistration. The action, placing a tem porary ceiling of 12 percent for savings and loan associations, m utual savings banks and credit unions, and 11-3/4 percent for com m ercial banks, is effective M arch 1 . Compounding of interest is perm itted and the new ceiling will result in an effective yield for 2-1/2-year instrum ents of 12.94 percent for thrifts and 12.65 percent for commercial banks. The 2-1/2-year certificate has been offered since Jan u a ry 1 with a ceiling rate tied to the yield on U.S. T reasury securities of sim ilar m aturity. U nder the change, the ceiling ra te on 2-1/2-year certificates will be the lower of the new fixed ceiling or the rate determ ined by the variable form ula th at has been in effect since January. Ceilings on all other deposit categories rem ain unchanged. Under the variable rate formula, savings and loans and m utual savings banks had been able to pay 50 basis points below the yield on Treasury securities m aturing in 2-1/2 years. The ceiling rate for banks had been 75 basis points below the T reasury yield. Federal credit unions had been able to offer the same variable rate as thrifts on share certificates of 90 days or more. The variable ceiling was established monthly, based on the rate announced by the T reasury three business days before the beginning of each month. The yield on T reasury securities th at m atu re in 2-1/2 years averaged about 14 percent over the five business days ending F eb ru ary 26. This would have m eant a ceiling ra te durin g M arch for this certificate of 13-1/2 percent for th rift institutions and 131/4 percent for commercial banks which, with compounding, would have perm itted effective yields of 14.67 percent and 14.47 percent, respectively. This action is necessary because the agencies believe th at a sudden increase of this m agnitude would be disruptive to many financial institutions, particularly those holding a high proportion of longerterm fixed rate loans. The agencies will continue to m onitor conditions in the financial m arkets closely and will be prepared to make whatever future adjustm ents in the ceiling rate th at may be appropriate. The Board of Governors has amended its Regulation Q, “Interest on Deposits,” putting this change into effect. A copy of the amendment, which is effective March 1, will be mailed to you shortly. T homas M. T im l e n , First Vice President.
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