The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FEDERAL RESERVE BANK
OF NEW YORK
[
Circular No. 9429 ~|
December 29, 1982 J
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
Final Rules and Proposed Rules
To All Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:
The Depository Institutions Deregulation Committee (DIDC) has released three final rules and two proposed
rules resulting from aetions taken at its December 6 meeting. The following is quoted from the text of a statement
issued by the DIDC describing those actions:
• Now Accounts. The DIDC authorized a new NOW account effective January 5, 1983, with the same features as the
money market deposit account (MMDA) effective December 14, 1982, except that it will permit unlimited
transactions. The new account will be made available only to those depositors eligible under Federal law to have
NOW accounts (individuals, certain nonprofit corporations, and governmental units). Under the Federal Reserve’s
Regulation D, NOW accounts are generally subject to reserve requirements of 12 percent.
• Transaction Feature for the MMDA. The DIDC also voted to request public comment on authorizing depository
institutions to offer to business organizations an MMDA with unlimited transactions features. The public comment
period will last for 45 days after the proposal is published in the Federal Register.
• Telephone Transfers on the MMDA . The DIDC voted to have telephone transfers counted among the six transfers
permitted each month on the MMDA. The November 15, 1982 decision to allow unlimited telephone transfers on
the MMDA was thus reversed.
• The 7- to 31-Day Account. The DIDC voted to remove the ceiling on the 7- to 31-day account effective January 5,
1983. The ceiling on this account has been suspended since September 8, 1982, because the 91-day Treasury bill
rate, to which the account is indexed, has been below 9 percent. If the auction average on the 91-day Treasury bill
(discount basis) rises above 9 percent in any weekly auction between now and January 5, there will be a ceiling and a
differential on this account until January 5, 1983.
• $2,500 Minimum Denominations. The DIDC voted to reduce to $2,500 the minimum denominations of the
$10,000 six-month money market certificate; the $7,500 91-day account; and the $20,000 7- to 31-day account.
This action will be effective January 5, 1983.
• Public Comment. In addition to the transaction features on the MMDA, the DIDC voted to seek public comment on
the following issues: changing a number of features of the 91 -day account and the 6-month money market certificate
to make the regulations on these accounts more consistent; several options for accelerating the schedule to remove
the deposit rate ceilings on existing accounts; a schedule to reduce the $2,500 minimum denominations on the
short-term accounts to zero over the next three years; and a proposal to rescind the ceilings on fixed-rate account
categories when their maturities are greater than the minimum maturity on the Committee’s deregulation schedule.
The public comment period will last for 45 days after the proposals are published in the Federal Register.
*
*
*
• Next Meeting. The next meeting will be on Tuesday, March 1, 1983, at 3:00 p.m. in the Cash Room in the Main
Treasury Building at 15th and Pennsylvania Avenue, N.W., Washington, D.C.
(OVER)
Enclosed is the text of two proposed DIDC rulings requesting comments on (1) whether the Committee should
accelerate the deregulation of interest rate ceilings on time deposits and/or simplify other regulations on existing time
deposit categories, and (2) whether the DIDC should permit the money market deposit account (MMDA) to be
offered to businesses with an unlimited transactions feature. Comments on these proposals should be submitted by
February 1, 1983, and may be sent to our Consumer Affairs and Bank Regulations Department.
Also enclosed — for depository institutions — is the text of the final rules issued by the DIDC, which has been
reprinted from the Federal Register of December 16, 1982. Single copies of these rules will be furnished to others
upon request directed to the Circulars Division of this Bank (Tel. No. 212-791-5216).
A nthony
M.
So l o m o n ,
President.
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
[12 CFR Part 1204]
(Docket No. D-0031)
Deregulation of Deposit Rate Ceilings
AGENCY:
Depository Institutions Deregulation Committee.
ACTION:
Proposed rulemaking.
SUMMARY: As a result of the passage of the Garn-St Germain Depository
Institutions Act of 1982, the Depository Institutions Deregulation
Committee ("Committee") is requesting public comment on whether it should
accelerate the deregulation of interest rate ceilings on deposits and
should simplify other regulations on existing deposit categories.
Specifically, the Committee requests comment on whether it should:
(1) remove all interest rate ceilings immediately OR deregulate accounts
with maturities of 91 days or more, except for a minimum early withdrawal
penalty OR eliminate all existing time deposit categories with maturities
of less than 91 days and extend the maximum maturity on the new Money
Market Deposit Account (12 C.F.R. $ 1204.122) to 91 days; (2) accelerate
its current schedule for phasing out interest rate ceilings; (3) simplify
the current rate ceiling schedules; (4) simplify interest rate ceilings
and other characteristics on the 26-week money market certificate and the
91-day time deposit to make them more consistent; and (5) simplify and
rationalize other features of account categories, such as minimum
denomination and compounding of interest, to make them more consistent.
DATES:
Comments must be received by February 1, 1983.
ADDRESS:
Interested parties are invited to submit written data, views,
or arguments regarding the proposal to Gordon Eastburn, Acting Executive
Secretary, Depository Institutions Deregulation Committee, Room 1058,
Department of the Treasury, 15th Street and Pennsylvania Avenue, N.W.,
Washington, D.C. 20220. All material submitted should include the Docket
Number D-0031.
Such material will be made available for inspection and
copying upon request except as provided in the Committee’s Rules
Regarding Availability of Information (12 CFR S 1202.5).
FOR FURTHER INFORMATION CONTACT:
Alan Priest, Attorney, Office of the
Comptroller of the Currency (202/447-1880); F. Douglas Birdzell, Counsel,
and Joseph A. DiNuzzo, Attorney, Federal Deposit Insurance Corporation
(202/389-4147); Rebecca Laird, Senior Associate General Counsel, Federal
Home Loan Bank Board (202/377-6446); John Harry Jorgenson, Senior
Attorney, Board of Governors of the Federal Reserve System
(202/452-3778); or Elaine Boutilier,
Attorney-Adviser,
Treasury
Department (202/566-8737).
[Enc. Cir. No. 9429]
http://fraser.stlouisfed.org/
k s i:
Federal Reserve Bank of St. Louis
-2 List of Subjects In 12 CFR Part 1204:
Banks, banking.
SUPPLEMENTARY INFORMATION: The Depository Institutions Deregulation Act
of 1980 (Title II of P.L. No. 96-221; 12 U.S.C. §§ 3501 et se^.) ("DIDA")
was enacted to provide for the orderly phaseout and ultimate elimination
of the limitations on the maximum rates of interest and dividends that
may be paid on deposit accounts by depository institutions as rapidly as
economic conditions warrant. Under the DIDA, the Committee is authorized
to phase out interest rate ceilings by any one of a number of methods,
including the elimination of interest rate limitations applicable to
particular categories of accounts, the creation of new account categories
not subject to interest rate limitations, or with interest rate ceilings
set at market rates of interest, or any combination of the above.
The Garn-St Germain Depository Institutions Act of 1982, Pub. L.
97-320 ("Garn-St Germain Act") amended the DIDA and required the
Committee to authorize the new Money Market Deposit Account ("MMDA").
After taking public comment, the Committee on November 15, 1982, did
create such an account to enable institutions to compete with money
market mutual funds, effective December 14, 1982.
(47 Fed. Reg. 53710
November 29, 1982)
Section 326 of the Garn-St Germain Act requires that
the interest rate differential in favor of thrifts be eliminated on or
before January 1, 1984.
In March 1982, the Committee adopted a deregulation schedule
that phases out interest rate ceilings beginning with longer-term time
deposits.
With the deregulation schedule in place, the focus of the
Committee turned to short-term deposit instruments.
Prevailing high
interest rates had caused a continued erosion of low-cost deposits at
banks and thrifts, as depositors sought market rates elsewhere,
particularly through money market mutual funds ("MMFs"). The Committee
addressed this problem by authorizing, effective May 1, 1982, a 91-day
time deposit with a $7,500 minimum denomination indexed to the 91-day
Treasury bill rate, and establishing effective September 1, 1982, a 7- to
31-day deposit account with a $20,000 minimum denomination, also indexed
to the 91-day Treasury bill rate.
On December 6, 1982, the Committee
further deregulated short-term deposits by exempting from interest rate
ceilings NOW accounts with average balances of $2,500 that are subject to
certain of the restrictions that apply to the MMDA to be effective
January 5, 1983.
The Committee also reduced to $2,500 the minimum
denomination on the 7- to 31-day, the 91-day, and the 26-week MMC
categories of deposits, effective January 5, 1983, and eliminated the
indexed ceiling on the 7- to 31-day account, effective on that date.
Because of the effect the statutory and regulatory changes
summarized above may have on the mix of short-term and long-term deposits
of depository institutions, the Committee requests comments on several
proposals pertaining to existing interest rate ceilings and account
-3characteristics. The Committee wishes to encourage interested parties to
comment on the effect that these changes may have on earnings and
liquidity.
Even if opposed to any changes or in favor of complete
deregulation of interest rate ceilings, interested parties are requested
to comment on changes that should be made if the Committee does decide to
accelerate the schedule or to amend the short-term deposit ceiling rate
schedules in order to simplify their characteristics and make them more
consistent.
Current Ceiling Rate Structure (see TABLE 1)
Under the current interest rate ceiling structure for deposits
at federally insured commercial banks, savings and loan associations, and
mutual savings banks, most of the interest rate ceilings on traditional,
fixed-rate time deposits are superseded as a practical matter by account
categories with indexed rates or with no rate ceiling.
Also, the MMDA
has no interest rate ceiling, and the 7- to 31-day account, effective
January 5, 1983, will also have no interest rate ceiling.
Deposit
categories with maturities of 91 days, 6 months and 2-1/2 to less than
3-1/2 years are available, but such accounts are subject to rate ceilings
tied to an index. Other categories with maturities between 31 days and
3-1/2 years are subject to the fixed-rate ceiling schedule.
With the
exception of the 1-1/2 year IRA/Keogh deposit category (which has a
limited purpose), depository institutions cannot offer ceiling-free
deposits with maturities of between 31 days and 3-1/2 years.
-4 -
TABLE 1
CURRENT TIME DEPOSIT CEILING RATE STRUCTURE^/
Maturity of Account
Commercial Banks
S&Ls and MSBs
Fixed Ceilings
5-1/4
5- 3/4
6
6- 1/2
7-1/4
7-1/2
7-3/4
14 to 89 days!/
90-day to 1 year!/
1 to 2-1/2 years
2-1/2 to 4 years!/
4 to 6 years^/
6 to 8 years!./
8 years and over!./
n.a.
6
6-1/2
63/4
71/2
7-3/4
8
Indexed or Ceilinq-Free
1 to 31-day MMDA
No ceiling
No ceiling
7- to 31-day accounti/
No ceiling
No ceiling
91-day account!/
Indexed
Indexed
6-month MMCd !/
Indexed; ceiling rate
does not decline
below 7.75 percent
Indexed; ceiling rate
does not decline
below 7.75 percent
18-month IRA/Keogh
Account
No ceiling
No ceiling
2-1/2-year to less
than 3-1/2-year!/
Indexed; ceiling rate
does not decline
below 9.25 percent
Indexed; ceiling rate
does not decline
below 9.50 percent
3-1/2-year or more!/
No ceiling
No ceiling
1. Does not describe all details of current ceiling rates.
2. Partially superseded by indexed accounts.
3. Completely superseded by indexed or ceilingless accounts.
4. Ceiling removed effective January 5, 1983.
5. See TABLE 3 for full detail of the index rate schedule for these accounts.
6. Indexed to average yield for Treasury securities with comparable remaining
maturity.
See 12 C.F.R. § 1204.106.
Effective April 1, 1983, this category
becomes "1-1/2 year to less than 2-1/2 years."
7.
These accounts have characteristics that distinguish them from fixed
ceiling time deposits.
See 12 C.F.R. § 1204.119.
Effective April 1, 1983,
this category becomes "2-1/2 years or more."
-5 Current Phaseout Schedule (s,ee TABLE 2)
The phaseout schedule adopted by the Committee in March of
1982 established a new deposit category with a maturity of 3-1/2 years
or more and no interest rate ceiling. Institutions were free to offet
the deposit in any denomination but had to at least offer it in a $500
denomination. Under the schedule, the maturity of the instrument will
be reduced annually by one year until March 31, 1986, at which time it
will have the minimum maturity for time deposits (currently 14 days).
The gap between short-term and long-term ceiling-free
deposits will be narrowed somewhat on April 1, 1983, when institutions
will be able to offer ceiling-free deposits with maturities of 2-1/2
years or more.
However, a 31-day to 2-1/2 year gap would remain,
restricting depositors and institutions alike in their selection of
ceiling-free accounts to those with very short, or with still
relatively long, maturities.
Since rate ceilings were initially
intended to reduce the risks to institutions of offering short-term
interest bearing deposits, and since, in any event, the existence of
indexed rate ceilings in the near-term ceiling structure may induce
institutions to shorten their liability structure unduly, the
Committee believes it is appropriate to consider removing existing
interest rate ceilings on longer-term deposits (or accelerating their
removal) to allow institutions to offer a range of deposit instruments
distinguished primarily by a negotiated rate and maturity.
This is
especially true since the short-term, ceiling-free accounts may be
attractive enough to draw significant funds from longer-term indexed
accounts.
The flexibility of the management of depository
institutions would also be increased by such an action.
-6TABLE 2
CURRENT INTEREST RATE CEILING DEREGULATION SCHEDULE
FOR INDEXED TIME DEPOSITS
Commercial
Bank Ceiling
Original Maturity
Thrift Ceiling
Effective April 1/ 1983
2-1/2 years or morel/
Ceiling eliminated
Ceiling eliminated
1-1/2 years to less
than 2-1/2 years!/
Thrift rate less .25%.
Average yield for
1-1/2 year Treasury
securities.
Ceiling eliminated
Ceiling eliminated
Ceiling eliminated
Ceiling eliminated
Ceiling eliminated
Ceiling eliminated
Effective April 1/ 1984
1-1/2 years or morel/
Effective April 1/ 1985
6 months or morel/
Effective March 311,986
14 days or morel/
1.
2.
3.
4.
5.
See
See
See
See
See
12
12
12
12
12
C.F.R.
C.F.R.
C.F.R.
C.F.R.
C.F.R.
S
§
S
S
S
1204.119 (d) .
1204.106 (c) (2).
1204.119 (e) .
1204.119(f).
1204.119 (g) .
-7 COMMENTS ON ELIMINATION OR ACCELERATION OF CEILINGS
Elimination of Rate Ceilings
The Committee requests comment on whether to eliminate the
current rate ceilings (TABLE 1) completely at its next meeting.
The
Committee is particularly interested in comments on the projected
effect such an action would have on institutional earnings and deposit
flows. While such an action would effectively eliminate the need for
the various existing deposit categories, such as the 91-day, and the
26-week MMC and the short-term fixed-ceiling deposit categories, it
would not actually eliminate these accounts.
Institutions would
probably want to retain some of these categories because they are
currently popular with consumers.
Eventually, however, the accounts
will probably become 'obsolete like the longer-term fixed-ceiling time
deposits shown in the top panel of TABLE 1.
Further, while
elimination of the rate ceiling structure would automatically remove
any interest rate differentials on deposit categories in favor of
thrift institutions, the elimination of all differentials must occur
on or before January 1, 1984, under section 326 of the Garn-St Germain
Act. Thus, if the Committee eliminated all existing ceilings at its
next meeting, and assuming a delayed effective date, the elimination
of the thrift differential would be accelerated by no more than nine
months.
An alternative to the removal of the current rate ceiling
structure was suggested to the Committee by the Federal Deposit
Insurance Corporation ("FDIC"). The FDIC suggests that the Committee
completely deregulate all time deposits with original maturities of 91
days or more by removing all interest rate ceilings and other
restrictions (except for an early withdrawal penalty) on such time
deposits.
For such time deposits, if funds are withdrawn within the
first 90 days of the deposit, a minimum early withdrawal penalty,
requiring the forfeiture of one-month's interest (not to exceed the
interest earned), would be imposed.
This penalty would be necessary
so that these totally deregulated time deposits can not be structured
to provide instant liquidity.
If withdrawal is permitted after the
first 90 days, institutions would be permitted, but not required by
regulation, to impose an early withdrawal penalty. The remaining rate
structure on time deposits with maturities of 31 to 90 days would be
phased out on March 31, 1986.
Alternatively, the Federal Home Loan
Bank Board suggested that all categories of time deposits with
original maturities of 91 days or less be eliminated and that the
maximum maturity of the money market deposit account be extended to 91
days from its current maximum of 31 days. The balance of the ceiling
rate structure would be phased out as currently scheduled (TABLE 2).
Acceleration of Rate Schedule
As mentioned above, the Garn-St Germain Act accelerated the
total elimination of the thrift differential from March 31, 1986, to
on or before January 1, 1984 and directed the Committee to create the
ceiling-free MMDA. Consistent with this Congressional acceleration of
the phaseout of limitations on the payment of interest, the Committee
also requests comment on accelerating its current schedule (TABLE 2)
for phasing out ceilings in general in the event the Committee finds
that total deregulation or the removal of ceilings is inappropriate at
this time.
For example, the entire schedule could be advanced one
year so that elimination of all ceilings occurs on April 1, 1985,
instead of March 31, 1986, or the one-year interval in TABLE 2 could
be reduced to six months.
The Committee could also accelerate the
removal of ceilings on longer-term deposits while keeping the
short-term portion of the schedule intact.
For example, it could
accelerate deregulation of ceilings on deposits with maturities of
1-1/2 years or more to April 1, 1983, from April 1, 1984, but leave
deregulation of rate ceilings on deposits with maturities of 6 months
to 1-1/2 years until the currently scheduled date of April 1, 1985.
COMMENTS ON SIMPLIFICATION
In addition to requesting comment on deregulation in general,
the Committee also requests comments on how it could simplify current
ceiling rate schedules and current account characteristics.
The
Committee also requests comment on whether it should rescind ceilings
on fixed-rate deposits that have been, or will be, superseded by
indexed or ceiling-free account categories (TABLE 1).
The Committee
also requests comment on whether it should promptly extend indexing to
all categories of fixed-rate deposits that have not yet been
superseded by indexed ceilings or by removal of ceilings (TABLE 1).
Ceilings on these newly indexed accounts would be phased out in
accordance with the schedule on TABLE 2.
Short-Term Deposit Rate Schedule (TABLE 3)
The current ceiling rate structure for the 26-week money
market certificate is presented in the top portion of TABLE 3. The
schedule is rather complex in that two alternative index rates are
used— the most recent auction rate on 6-month Treasury bills or an
average of the bill rates at the four most recent auctions— and the
formula for determining the ceiling rate changes at five different
levels of the index rate.
-9TABLE 3
CURRENT CEILING SCHEDULES FOR SHORT-TERM DEPOSIT ACCOUNTS
Index Rate!/
Commercial
Bank Ceiling
Thrift Ceiling
Differential
26-week money market certificate,
greater than
8.75 percent
index rate + .25
index rate + .25
8.5 to 8.75
index rate + .25
9.0
7.5 to 8.5
index rate + .25
index rate + .50
.25
7.25 to 7.5
7.75
index rate + .50
.25 to 0
less than 7.25
7.75
7.75
0
0 to .25
0
91-day account
greater than
9.0 percent!/
index rate - .25
index rate
9.0 percent
or belowil/
index rate
index rate
0
7- to 31-day
account!/
no ceiling
no ceiling
--
.25
1. The index rate for the 26-week MMC is the higher of the most recent
auction rate (auction average, discount basis) on 6-month Treasury bills or an
average of the four most recent auction rates. The index rate on the 91-day
account is the most recent auction rate (auction average, discount basis) on
3-month Treasury bills.
2. The differential is scheduled to be removed on May 1, 1983. At that time,
all institutions will be able to pay the index rate at all interest rate
levels.
3. The index must be 9.0 percent or below for four consecutive auctions.
4. At its December 6, 1982 meeting, the Committee determined that, effective
January 5, 1983, the 7-to 31-day account would become ceiling free.
This
action was taken because the ceiling (indexed to the 91-day Treasury bill
rate) became meaningless with the authorization of the new money market
deposit account, which is ceiling free.
-10
The methods of establishing the ceilings on the newer 91-day
account (authorized beginning in May 1982) is less complex than the MMC,
with the formula for determining the ceiling rate at various index rate
levels changing only once, namely, when the 3-month Treasury bill rate
reaches 9.0 percent (middle portion of TABLE 3).
In addition to
different ceiling rate structures, the thrift differential is applied
inconsistently to these accounts.
It is added to the index rate in the
case of the 26-week MMC but is deducted from the index in the case of the
91-day deposit.
Moreover, in the case of the 26-week MMC the
differential is removed if the index rate goes above 8.75 percent and is
removed on the 91-day account when the index rate falls below 9 per
cent. However, the differential on the 91-day account is scheduled to be
eliminated on May 1, 1983, so conforming this feature on these two
accounts solely for the purpose of consistency may be unnecessary.
The different methods of calculating the ceilings on the MMC and
the 91-day instrument have resulted in a confusing, and in some instances
an inconsistent, situation. Therefore, the Committee requests comment on
whether and how this schedule should be
revised.
t
Simplification of Other Account Characteristics (TABLE 4)
Even if the Committee determines to make no changes to the
short-term rate ceiling schedule, other characteristics of the short-term
deposit categories could be made more consistent in order to simplify the
current account structure.
Some of the differences in the short-term
deposit accounts are presented in TABLE 4.
r
-1 1 TABLE 4
SELECTED CHARACTERISTICS OF SHORT-TERM DEPOSIT ACCOUNTS
7-
to 31-1
Character is tic
Minimum
denomination
26-week MMC
$2,500.1/
$2,5001/
$2,5002/
Loophole loans
permitted
prohibited
prohibited
Index rate
6-month bill
rate or 4-week
average of bill
rates
3-month bill
rate
N. A.
Relation between
index rate and
ceiling rate
presented in
table 1
presented in
table 1
N. A.
Minimum ceiling
7.75%
Compounding
prohibited!/
prohibited!/
Differential
when index rate
is between 7.25
and 8.75 %A/
when index rate
is above 9.0%!/
N. A.
Differential on
IRA/Keogh ac
counts and de
posits of gov
ernmental units
Banks may pay
the thrift rate
for these
deposits
Differential
applies to these
deposits
N.A.
Dec. 31, 19831/
May 1, 1983
—
April 1, 1985
March 31, 1986
—
Scheduled elimi
nation of
differential
Scheduled elimi
nation of ceiling
91-day account
none
none
unrestricted
1. Effective January 5, 1982.
2. Although compounding is prohibited, a saver effectively will receive
semiannual compounding if the original deposit plus interest is reinvested in
another MMC at maturity.
3. Although compounding is prohibited, a saver effectively will receive
quarterly compounding if the original deposit plus interest is reinvested in
another 91-day certificate at maturity.
4. The full 25 basis point differential is in effect only when the index rate
is between 7.5 and 8.5 percent.
5. Scheduled to be eliminated May 1, 1983.
6. Prior to the passage of the Garn-St Germain Depository Institutions Act,
this differential was scheduled to be eliminated on April 1, 1985.
-1 2 In view of these complexities, the Committee requests comment on
whether changes should be made to the existing regulations authorizing
these accounts in order to make the regulations less cumbersome and more
uniform. The Committee is particularly interested in comments on (1) the
relation between the index rate and the ceiling rate, (2) the thrift
ceiling rate differential, (3) loophole loans, (4) the use of the
four-week average method of calculating the MMC ceiling, and (5) the
frequency of compounding that is permitted.
The Committee also requests comment on whether it should phase
out minimum denomination requirements.
For example, combining the
phaseout of the minimum denomination on the MMDA and other short-term
accounts with the Committee's current rate deregulation schedule would
have the effect of phasing out passbook and NOW account ceiling rates as
well as the minimum denomination on NOW accounts exempt from rate
ceilings. Ceilings on savings accounts and on NOW accounts not subject
to a minimum denomination requirement are not eliminated until March 31,
1986 under the Committee's current phaseout schedule.
As the minimum
denomination of indexed or ceiling-free, short-term time deposits is
reduced under a phaseout schedule, the ceiling rate on savings and NOW
accounts would become less binding, and more depositors would become
eligible for the higher rate.
For example, the $2,500 minimum
denomination on the MMDA, NOW accounts exempt from rate ceilings, the 7to 31-day account, the 91-day account, and the 26-week MMC could be
reduced $500 or $1,000 at the time of each interest rate ceiling
adjustment.
At the next such adjustment, scheduled for April 1, 1983,
the minimum denomination on such accounts could be reduced to $1,500.
Subsequent periodic reductions would occur until no minimum denomination
would be required on any deposit category.
OUTLINE OF POSSIBLE OPTIONS ON WHICH COMMENT IS REQUESTED
A summary of the options, discussed above, of possible Committee
action is presented in an outline form below.
Elimination of Interest Rate Ceilings
1. Should the Committee eliminate
structure (TABLE 1)?
the current
interest
rate ceiling
a.
Should the Committee eliminate all remaining
ceilings immediately?
interest rate
b.
Should the Committee adopt the FDIC proposal and remove
interest rate ceilings and all other restrictions on deposits
with original maturities of 91 days or more, except for an
early withdrawal penalty for withdrawals made in the first 90
days of the deposit?
\
-13c.
Should the Committee
the maximum maturity
days and eliminating
deposits and let the
adopt the FHLBB suggestion by extending
on money market deposit accounts to 91
all competing categories of short-term
current schedule apply otherwise?
d.
What other methods of eliminating current ceilings should the
Committee consider?
Acceleration of the Current Rate Phaseout Schedule (TABLE 2)
2. Should the
(TABLE 2)?
Committee
accelerate
the
current
phaseout
schedule
a.
Should the Committee simply advance each date in TABLE 2 by
six months or a year or by some other period?
b.
Should the Committee accelerate the long-term phaseout
schedule (i.e. move up deregulation of deposits with original
maturities of 1-1/2 years or more) but allow the deregulation
schedule for all other time deposits to remain intact (i.e.
91-days to 1 year)?
c.
What other methods of accelerating deregulation should the
Committee consider?
Simplification of interest Rate Ceilings
3. If the Committee does not eliminate or accelerate the phaseout of
interest rate ceilings in general, should the Committee make changes
to the rate ceiling schedule for any category of time deposits
(TABLE 1)?
a.
Should all indexed accounts (middle of TABLE 1 and TABLE 3)
become ceiling-free when their base rate is at 9 per cent or
below (or at some other base rate) for four consecutive
auctions (or for some other period)?
b.
Should indexed accounts have a minimum ceiling that remains at
9 per cent (or some other rate) if the auction rate is at or
below a rate of 9 per cent?
c.
Should the elimination of the thrift differential be
accelerated from its current statutory elimination on December
31, 1983?
d.
Should the Committee rescind existing rate ceilings on all
fixed-ceiling time deposits that are now, or in the future
will be, superseded by indexed or ceiling-free accounts?
(See
footnotes 2 & 3 to TABLE 1)
-14e.
Should existing ceilings on fixed-rate accounts (top of
TABLE 1) be eliminated and replaced by appropriate market rate
indexing (bottom of TABLE 1) , which would then be subject to
the phaseout schedule (TABLE 2)?
f.
What other options
Committee consider?
forsimplifying
ceilings
should
the
Simplification and Rationalization of Interest Rate Ceilings and Other
Characteristics of the 26-week MMC and the 91-day Account
4. If the Committee does not make changes to the rate ceiling schedule
for deposits in general (No. 3, above), should it make changes to the
26-week MMC and the 91-day account (TABLE 3)?
a.
Should the Committee remove the interest rate ceilings on the
26-week money market certificate and the 91-day account as it
did for the 7- to 31-day account at its last meeting?
b.
Should
the 26-week MMC and the 91-day account become
ceiling-free when the rate on U.S. Treasury bills is at 9 per
cent or below (or at some other rate) for four consecutive
auctions (or for some other period)?
c.
Should the 26-week MMC and the 91-day account have a minimum
ceiling that remains at 9 per cent (or at some other rate) if
the auction rate is below a rate of 9 per cent (or at some
other rate)?
d.
Should
theCommittee eliminate
ceiling for the 26-week MMC?
e.
Should
the phaseout
of the differential on 26-week MMCs,
currently scheduled for December 31, 1983, be accelerated to
May 1, 1983, to conform to the phaseout date for the
differential on the 91-day account?
f.
Should commercial banks be permitted to pay the thrift ceiling
rate on maturing 26-week MMCs in order to enable them to
compete more effectively for such deposits upon maturity?
g.
Should the Committee rescind the amendment on the 26-week MMC
which permits the ceiling to be the higher of the auction
average or a 4-week average of the auction rates?
h.
What other options concerning changes to the ceiling rates on
these accounts should the Committee consider?
the 7.75
per
cent minimum
i
-1 5 Simplification of Characteristics of Deposit Categories
5. If the Committee does not make changes to the schedule for
deregulating rates in general, should it make changes to the primary
characteristics of short-term deposits (TABLE 4)?
a.
Should the Committee permit loans to meet the minimum
denomination requirements on all accounts OR should it
prohibit such loans on all accounts?
b.
Should the Committee establish a schedule for
minimum denomination requirements (such as
minimum by $500 or $1,000 on each scheduled
phaseout date) OR should it eliminate such
immediately?
c.
Should the Committee permit compounding on the 26-week MMC and
the 91-day account as is currently permitted on all other
interest-bearing accounts?
d.
Should commercial banks be permitted to pay the ceiling rate
for thrifts on IRA/Keogh and governmental unit deposits?
e.
What other changes to the characteristics of these accounts
should the Committee consider?
phasing out all
reducing the
interest rate
requirements
The Committee wishes to encourage interested parties to comment
on the effect these changes may have on earnings and liquidity.
Even if
opposed to any changes or in favor of complete deregulation of interest
rate ceilings, interested parties should comment on specific changes that
they believe should be made if the Committee does decide to accelerate
the schedule or to amend the short-term deposit ceiling rate schedules in
order to simplify and make their characteristics more consistent.
By order of the Committee, December 22, 1982
bur
‘
jMark
n
Bender
Acting Ex
Executive
Secretary
i
D E P O S IT O R Y IN STITU TIO N S
D E R E G U LA TIO N CO M M ITTE E
12 C F R Part 1204
[D ocket No. 0030]
M o n e y M arket D e p o sit A c c o u n t With
U n lim ited T ra n s fe rs fo r T h o s e N ot
E lig ib le T o M aintain N O W A c c o u n ts
Depository Institutions
Deregulation Committee.
ACTION: Proposed rulemaking.
SUMMARY: The Committee is requesting
comment on an amendment to the
Money Market Deposit Account
authorized by the Committee, effective
December 14, 1982, at 12 CFR § 1204.122.
that would remove the restrictions on
the number of transfers of funds for
those accounts held by depositors that
are not eligible to maintain NOW
accounts.
AGENCY:
DATE: Comments must be received by
February 1,1983.
ADDRESS: Interested parties are invited
to submit written data, views, or
arguments concerning the proposed
amendment to Gordon Eastburn, Acting
Executive Secretary, Depository
Institutions Deregulation Committee,
Room 1058, Department of the Treasury,
15th Street and Pennsylvania Avenue.
N.W., Washington, D.C. 20220. All
material submitted should include the
Docket Number 0030 and will be
available for inspection and copying
upon request, except as provided in
§ 1202.5 of the Committee’s Rules
Regarding Availability of Information
(12 CFR 1202.5).
FOR FURTHER INFORMATION CONTACT:
Alan Priest, Attorney, Office of the
Comptroller of the Currency (202/4471880); Joseph DiNuzzo, Attorney,
Federal Deposit Insurance Corporation
(202/389-4147); Rebecca Laird, Senior
Associate General Counsel, Federal
Home Loan Bank Board (202/377-6446):
Robert G. Ballen, Attorney, Board of
Governors of the Federal Reserve
System (202/452-3265): or Elaine
Boutilier, Attorney-Adviser, Treasury
Department (202/566-8737).
SUPPLEMENTARY INFORMATION: The
Depository Institutions Deregulation Act
of 1980 (“DIDA”) (Title II of Pub. L. 96-
221,12 U.S.C. 3501 et seq.) established
the Committee to provide for the orderly
phaseout and ultimate elimination of the
limitations on the maximum rates of
interest and dividends that may be paid
on deposit accounts by depository
institutions as rapidly as economic
conditions warrant. Section 327 of the
Garn-St Germain Depository Institutions
Act of 1982 requires the Committee to
authorize a new insured deposit account
that “shall be directly equivalent to and
competitive with money market funds.”
The Committee established this new
account, the Money Market Deposit
Account (“MMDA”), effective December
14,1982 (12 CFR 1204.122). The MMDA
is an insured deposit account with the
following principal characteristics: (1)
An initial balance and average balance
requirement of no less than $2,500; (2) no
minimum maturity; (3) no interest rate
ceiling on deposits satisfying the initial
and average balance requirements; and
(4) a maximum of six preauthorized,
automatic or third party transfers per
month, of which no more than three can
be checks. Any depositor is eligible for
the MMDA account.
The Committee subsequently,
pursuant to its authority under the
DIDA, established a new rule for the
payment of interest on NOW accounts
that have a minimum initial and average
balance of $2,500. A depository
institution may pay any rate of interest
on such accounts if it also meets certain
conditions that apply to the MMDA (12
CFR 1204.108(b)). NOW accounts
generally are available only to
individuals, certain nonprofit
organizations operated primarily for
religious, philanthropic, charitable,
educational, or other similar purposes
and governmnental units (12 U.S.C.
1832(a)(2).
The Committee requests comment on
a proposed modification to the MMDA
that would permit commercial banks,
mutual savings banks, and savings and
loan associations to offer the MMDA to
depositors that are not eligible to
maintain NOW accounts with no
restriction as to the number of transfers
of funds from the account. In this regard,
the General Counsel to the Committee
has concluded that the Committee may
modify the MMDA to provide for
unlimited transfers for all categories of
depositors given that Congress did not
restrict the Committee’s authority to ad(l
other characteristics that would make
the account “directly equivalent to and
competitive with money market mutual
funds” and provided that the account be
available to all customers. The
Committee is particularly interested in
comments on the impact of this
proposed modification to the MMDA
account on: (1) The flow of funds into
and out of, and between accounts
within, institutions; (2) the earnings of
institutions; and (3) the funding of
institutions in light of the differing
degree of regulation on accounts with
different maturities.
The Committee has considered the
potential effect on small entities of the
proposal to modify the MMDA, as
required by the Regulatory Flexibility
Act (5 U.S.C. 603 et seq.). In this regard,
the Committee’s action, in and of itself,
would not impose any new reporting or
recordkeeping requirements. Consistent
with the Committee’s statutory mandate
to eliminate deposit interest rate ceiling,
this proposal would enable all
depository institutions to compete more
effectively in the marketplace for short
term funds. Depositors that are not
eligible to maintain NOW accounts
generally should benefit from the
Committee’s proposal, since the new
instrument would provide them with
another investment alternative that pays
a market rate of return. If low-yielding
deposits shift into the new account,
depository institutions might experience
increased costs as a result of this action.
However, their competitive position visa-vis nondepository competitors would
be enhanced by their ability to offer a
potentially more attractive competitive
short-term instrument at market rates.
The new funds attracted (or the
retention of deposits that might
otherwise have left the institution) could
be invested at a positive spread and
would therefore at least partially offset
the higher costs associated with the
shifting of low-yielding accounts.
List of Subjects in 12 CFR Part 1204
Banks, banking.
By order o f the Committee, December 14
1982.
Mark Bender,
Acting Executive Secretary.
[FR Doc. 82-34270 Filed 12-15-82; 8:45 am]
BILLING CODE 4810-25-M
PRINTED IN NEW YORK. FROM FEDERAL REGISTER. VOL. 47, NO. 242
[Enc. Cir. No. 9429]
DEPOSITORY INSTITUTIONS
DEREGULATION COMMITTEE
12CFR Part 1204
[Docket No. D -0026]
Money Market Deposit Account
Depository Institutions
Deregulation Committee.
a c t io n : Final rule.
AGENCY:
The Depository Institutions
Deregulation Committee (“Committee”)
authorized the Money Market Deposit
Account ("MMDA") effective December
14, 1982. See 47 FR 53710 (November 29.
1982). As originally authorized, the
Committee restricted the MMDA to a
maximum of six preauthorized,
automatic or other third-party’ transfers
per month. The Committee also
determined at that time to permit
unlimited telephone transfers from the
MMDA to another account of the same
depositor at the same depository
institution. At its December 6,1982
meeting, the Committee reconsidered
this question and decided that, in order
to reduce the potential for the MMDA to
be a transaction account, telephone
transfers from the MMDA to another
account of the same depositor at the
same depository institution will be
counted in determining compliance with
the limit of six transfers per month.
In a separate action, the Committee
amended the definition of “month,” for
purposes of determining compliance
with the transaction limitations, the
minimum average balance requirements
and the interest rate guarantee
limitations. The new definition provides
that a "month" may be (at the
depository institution’s option) a
calendar month or statement cycle; with
a statement cycle normally being 28 to
31 days, but occasionally being as long
as 35 days. The Committee took this
action because a number of depository
institutions indicated that they had
statement cycles that occasionally
exceeded the 31-day maximum of the
Committee's previous rule.
EFFECTIVE DATE: December 14,1982.
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
A lan Priest, A ttorney, O ffice o f the
C om ptroller of the C urrency (202/4471880); F. D ouglas Birdzell, C ounsel, and
Joseph A. D iN uzzo, A ttorney, Federal
D ep osit Insurance C orporation (202/
389-4147); R eb ecca Laird, Senior
•A sso c ia te G eneral C ounsel, F ederal
H om e Loan Bank Board (202/377-6446);
Paul S. P ilecki, Senior A ttorney, Board
of Governors of the Federal Reserve
System (202/452-3281); or Elaine
Boutilier, Attorney-Adviser, Treasury
Department (202/566-8737).
SUPPLEMENTARY INFORMATION*. Section
327 of the Garn-St Germain Depository
Institutions Act of 1982, Pub. L. No. 97320, directed the Committee to establish
a new account (now designated the
MMDA) effective December 14,1982. On
October 19,1982, the Committee
published a request for comments
regarding characteristics of the MMDA
(47 FR 45630). That request noted that, in
the staff s view, a telephone transfer
from the MMDA to another account of
the same depositor at the same
depository institution should be
considered a preauthorized or automatic
transfer for purposes of any numerical
restriction on the number of
preauthorized or automatic transfers
from the MMDA. Many of the comments
received by the Committee expressed
disagreement with this staff position.
At its November 15,1982 meeting, the
Committee adopted the MMDA
regulation effective December 14,1982,
which establishes a limit of six
preauthorized or automatic transfers of
funds from an MMDA per month no
more than three of which may be by
check or draft drawn by the depositor.
However, the Committee determined
that, for purposes of this numerical
limitation, a telephone transfer from the
MMDA to another account of the same
depositor at the same institution would
not be considered a preauthorized or
automatic transfer. In its publication of
the MMDA regulations, the Committee
noted that it would reconsider this issue
at its next meeting (47 FR 53715).
At its December 6, 1982 meeting, the
Committee reconsidered the telephone
transfer issue in the context of two
decisions made at that time. The first
was the Committee’s determination,
effective January 5,1983, to establish a
new rule for the payment of interest on
NOW accounts with a minimum balance
of $2500. A depository institution may
pay any rate of interest on such
accounts that also meet certain
conditions that apply to MMDAs. NOW
accounts permit unlimited transactions
(including unlimited telephone
transfers), and eligibility is limited by
statute to individuals, certain nonprofit
organizations and governmental entities.
The second relevant decision was the
determination to request comments on
amending the MMDA regulation to
allow depository institutions to offer an
unlimited transactions version of the
MMDA to those customers (primarily
for-profit corporations) that are not
eligible to have NOW accounts. The
Committee noted that allowing
unlimited telephone transfers from the
MMDA to other accounts of the same
depositor at the same depository
institution made it possible to utilize the
MMDA much like a transaction account.
This potential use for MMDA funds
made more problematic the Federal
Reserve Board’s definition and use of
monetary aggregates. The Committee
also noted the Federal Reserve Board’s
recent decision to impose transaction
account reserves on MMDAs where a
depository institution did not count a
telephone transfer as a preauthorized or
automatic transfer for purposes of the
six transfers per month limitation (See
47 FR 55207 (December 8,1982)).
Given the above summarized facts
and decisions, the Committee
determined that a telephone transfer
from the MMDA to another account of
the same depositor at the same
depository institution will be considered
a preauthorized or automatic transfer
for purposes of the MMDA regulation’s
limit of six transfers per month.
In so doing, the Committee noted that
telephone transfers from the MMDA
effecting payment to third parties
continue to be subject to the limit of six
transfers per month. However, the
Committee also noted that withdrawals
made by telephone from the MMDA and
paid to the depositor are not subject to
the limitation on preauthorized or
automatic transfers. In this regard,
unlimited withdrawals are permitted
where the depository institution sends a
check to its MMDA customer in
response to a telephonic instruction
from that customer.
At its November 15,1982 meeting, the
Committee defined the term “month” as
either (at the depository institution’s
option) a calendar month or statement
cycle of at least four weeks, but not
longer than 31 days. This definition
applied for purposes of determining
compliance requirements stated in
monthly terms, i.e., the six-transaction
limitations, the minimum average
balance requirements, and the interest
rate guarantee limitations. A number of
institutions brought to the Committee’s
attention the fact that the 31-day
maximum creates occasional difficulties
for depository institutions that utilize
statement cycles keyed to working days
rather than calendar days. For example,
if an institution utilized a statement
cycle that ends on the fourth working
PRINTED IN NEW YORK, FROM FEDERAL REGISTER, VOL. 47 NO. 242
[Enc. Cir. No. 94291
day of each month, the statement cycle
covering the August 1982 period would
have been 33 days long; if the statement
cycle ended on the first Tuesday of each
month, in August 1982, the statement
cycle would have been 35 days long.
Although these “longer" statement
cycles occur infrequently, such as two or
three times a year, following the rule
would cause institutions to be in
technical violation of the rule or create
unnecessary operational burdens on
depository institutions.
List of Subjects in 12 CFR Part 1204
Banks, banking.
By order o f the Comm ittee, D ecem ber 14,
1982.
PART 1204— [AMENDED]
Acting Executive Secretary.
Mark Bender,
Pursuant to its authority under Title II [FR Doc. 82-34268 Filed 12-15-82; 8:45 am)
of Pub. L. No. 96-221 (94 Stat. 142; 12
BILLING CODE 4810-25-M
U.S.C. 3501 et seq .) to prescribe rules
governing the payment of interest and
dividends on deposits and accounts of 12 CFR Part 1204
federally insured commercial banks,
[Docket No. D -0028]
savings and loan associations, and
mutual savings banks, and pursuant to
the authority granted by Section 327 of NOW Accounts of $2,500 or More
In resp on se to this problem , the
the Gam-St Germain Depository
C om m ittee, in a sep arate action, m ade a Institutions Act of 1982, Pub. L. No. 97- AGENCY: D ep ository Institutions
tech n ical am endm ent to the M M DA
320 (to be codified at 12 U.S.C. 3503), the D eregulation C om m ittee.
regulation by defining a “m onth” to be
Committee amends Part 1204 (Interest ACTION: Final rule.
either a calen dar m onth or a statem ent
on Deposits) by revising paragraphs (b)
cy cle, w ith a statem ent cy cle norm ally
and (e)(1) of § 1204.122, effective
SUMMARY: The Depository Institutions
being 28-31 days, but o cca sio n a lly being December 14,1982, to read as follows:
Deregulation Committee ("Committee”)
as long as 35 d ays. T his action w ou ld
§ 1204.122 Money Market Deposit
has established a new rule for the
provide d ep ository in stitutions w ith
Account.
payment of interest on NOW accounts
m axim um flexib ility in designing
* * * * *
with a minimum initial and average
M M D A s w ithin their existin g
operation al structures or w ith m inim al
balance requirement of $2,500. A
(b) The average balance for this
adjustm ents. A d ep ository institution, at account may be calculated on the basis depository institution may pay any rate
its option, m ay u se either a calen dar
of the average daily balance over any of interest on such accounts if it meets
m onth or statem ent cycle, provided it
the following conditions that also apply
computation period selected by an
d oes so con sisten tly .
institution, which is not longer than one to the Money Market Deposit Account
month. (For purposes of this paragraph (12 CFR 1204.122) ("MMDA”): (1) An
As discussed above, the Committee
institution must reserve the right to
and paragraphs (c) and (e) of this
requested and received public
require seven days’ notice prior to
section, a “month” shall mean, at a
comments on whether telephone
transfers from the MMDA to other
depository institution's option, either a withdrawal; (2) compliance with the
accounts of the same customer should
calendar month or a statement cycle. A average balance requirement may be
computed over a period no longer than
be considered automatic or
statement cycle is normally 28 to 31
preauthorized transfers for purposes of
days, but may occasionally be as long as one month; (3) the existing NOW
account ceiling rate (5 %percent) applies
the Committee’s MMDA regulations. In
35 days.)
* * * * *
to accounts that do not meet the average
addition, in its November 29,1982
publication of its MMDA regulations,
(e)(1) Depository institutions are not balance requirement; (4) an interest rate
the Committee advised that the
required to limit the number of transfers may not be guaranteed for longer than
telephone transfer issue would be
of funds from this account to another one month; and (5) loans are not
permitted to meet the $2,500 initial or
reconsidered at its next meeting. With
account of the same depositor when
respect to the new definition of a month, made by mail, messenger, automated average balance requirement. These
it is noted that this is a technical
teller machine or in person. Depository rules apply to accounts that are
amendment providing greater flexibility institutions are not required to limit the authorized under 12 U.S.C. 1832(a).
to depository institutions and, as such,
number of withdrawals [i.e., payments Accordingly, such accounts are
relieves a restriction. Because the
available only to individuals, nonprofit
directly to the depositor) from this
MMDA regulations have a statutorily
account when made by mail, telephone organizations operated primarily for
mandated effective date of December 14, (via check mailed to the depositor),
religious, philanthropic, charitable,
1982, the Committee’s action must be
messenger, automated teller machine or educational, fraternal and other similar
effective on that date. In light of the
in person. Depository institutions must purposes, and to governmental units.
This action was taken by the Committee
foregoing, good cause exists for not
restrict all preauthorized (including
following the prior notice, opportunity
automatic) transfers of funds from this in connection with its responsibility
for comment and deferred effective date account to a maximum of six per month. under the Depository Institutions
Deregulation Act to phase out deposit
provisions of 5 U.S.C. § 553. In view of
Three of such transfers may be by
the Committee’s findings, sections 603
check, draft or similar device drawn by interest rate ceilings as rapidly as
and 604 of the Regulatory Flexibility Act the depositor to third parties. Telephone economic conditions warrant.
(5 U.S.C. 603 and 604) are not applicable. transfers to third parties or to another EFFECTIVE DATE: January 5, 1983.
Furthermore, because of the nature of
FOR FURTHER INFORMATION CONTACT:
account of the same depositor are
this action, the Committee finds that
Paul S. Pilecki, Senior A ttorney, Board
regarded as preauthorized transfers.
good cause exists under section
o f G overnors of the Federal R eserve
There is no required minimum
1201.6(e) of the Committee’s regulations denomination for the transfers allowed S ystem (202/452-3281); R ebecca Laird.
for making this action effective less than by this section.
Senior A sso cia te G eneral C ounsel.
30 days from the date of publication in
* * * * *
Federal H om e Loan Bank Board (202/
377-6446); Joseph A. D iN uzzo, A ttorney,
the Federal Register.
2
Federal Deposit Insurance Corporation
(202/389-^1147); Alan Priest, Attorney,
Office of the Comptroller of the
Currency (202/447-1880); or Elaine
Boutilier, Attorney-Adviser, Treasury
Department (202/566-8737).
SUPPLEMENTARY INFORMATION; The
Depository Institutions Deregulation Act
of 1980 (Title II of Pub. L. 96-221; 12
U.S.C. 3501 et seq.) ("DIDA") was
enacted to provide for the orderly phase
out and ultimate elimination of the
limitations on the maximum rates of
interest and dividends that may be paid
on deposit accounts by depository
institutions as rapidly as economic
conditions warrant. Under DIDA, the
Committee is authorized to phase out
interest rate ceilings by any one of a
number of methods, including the
elimination of limitations applicable to
particular categories of accounts, the
creation of new account categories not
subject to interest rate ceilings or with
interest rate ceilings set at market rates
of interest.
The Committee has considered the
issue of short-term time deposits at each
of its meetings since June 25, 1981. At
that meeting, the Committee determined
to request public comment on the
desirability of authorizing a new deposit
instrument having characteristics
similar to money market mutual funds
("MMFs”) (46 FR 36712, July 15, 1981).
Over 400 comments were received in
response to the Committee’s request.
The Committee considered these
comments at its September 22,1981
meeting and determined to solicit
additional public comment (46 FR 50804,
October 15,1981) on several specific
proposals for a short-term deposit
designed to compete with money market
instruments that are available in
denominations of less than $100,000. The
three specific proposals were: (1) A
ceilingless, $5,600 minimum
denomination account with a
transactions feature; (2) a time deposit
with an initial maturity of 91 days, and a
14-day notice period thereafter, with a
ceiling rate tied to the 13-w'eek Treasury
bill rate; and (3) a ceilingless $25,000
minimum denomination 1-day notice
account. Comment was requested on
several specific account characteristics
as well. On December 16,1981, the
Committee postponed consideration of
the matter until its next meeting.
At its March 22,1982 meeting, the
Committee considered the comments
received and au th o re d , effective May
1,1982, a new category of time deposit
with a minimum denomination of $7,500,
a maturity of 91 days, and a fixed
interest rate ceiling based on the most
recent rate (auction average on a
discount basis) established and
announced for U.S. Treasury bills with
maturities of 91 days. At that time, the
Committee recognized that the new
deposit category would not be fully
competitive with instruments being
offered by non-depository institutions.
Therefore, the Committee directed its
staff to continue efforts to design
additional short-term deposit categories
to enable depository institutions to
compete more effectively with MMFs.
After consideration of the comments
received and the analysis and
discussions from previous meetings, as
summarized above, the Committee
determined to authorize, effective
September 1,1982, a new category of
short-term time deposit with the
following principal characteristics: (1) A
minimum denomination of $20,000; (2) a
maturity or required notice period of no
less than seven days and no more than
31 days as agreed to by the depositor
and the institution; and (3) a ceiling rate
for all depository institutions based on
the 91-day Treasury bill rate (auction
average on a discount basis) at the most
recent auction.
Of all the instruments put forth for
comment in October 1981, the $5,000
minimum denomination transaction
account was clearly the most popular
because it was generally perceived to be
the most competitive vis-a-vis MMFs.
Nevertheless, the Committee declined to
authorize such an instrument,
principally because of the large increase
in the interest costs of depository
institutions—particularly thrifts—that
could have resulted from massive
shifting of funds out of low-yielding
passbook accounts. Indeed, the two
accounts subsequently created by the
Committee were structured expressly to
limit the extent of such shifting. More
recently, at its September meeting the
Committee considered petitions by four
state regulatory agencies to permit
federally-insured depository institutions
in those states to offer "Super NOW
accounts" or similar accounts. These
petitions were denied partly because of
the probable impact on earnings of thrift
institutions and the potential for
disruptions in regional flows of funds;
the Committee also wanted to delay
action on a selective state-by-state basis
until after Congress had authorized
expanded asset powers for the thrift
institutions, after which the Committee
wanted to consider creating a new
account that would be available
nationwide.
In October 1982, Congress directed the
Committee to establish a category of
account "directly equivalent to and
competitive with money market mutual
funds." The Committee established the
Money Market Deposit Account
(“MMDA”), effective December 14,1982,
with a $2,500 minimum balance, no
interest rate ceiling and limited
transactions capability (47 FR 53710,
November 29,1982).
When the Committee requested
comment on the MMDA in October,
numerous respondents expressed a
desire to have the option of offering the
account with unlimited transfers and
drafts. Many others simply assumed that
institutions would have the choice of
limiting third-party transfers or
structuring the account without such
limits, recognizing that the latter option
would entail transaction account
reserve requirements. Institutions who
favored unlimited transfers cited the
liquidity and access features of MMFs
as key ingredients to their success, and
felt that any account intended to
compete effectively with MMFs must
allow institutions similar flexibility to
provide full transactions capabilities.
In light of the authorization of the
congressionally mandated MMDA, the
Committee believes that it is now
appropriate to authorize a transaction
account not subject to a rate ceiling. In
this regard, the MMDA will likely attract
a substantial amount of funds from
passbook accounts. Consequently, the
Committee believes that the additional
effects on shifts of funds from passbook
accounts caused by a market-rate
transaction account will be minimal and
that the earpings effects associated with
such an account, therefore, will be
diminished considerably.
Accordingly, effective January 5, 1983,
the Committee has established a new
rule for the payment of interest on NOW
accounts that are offered with the
following features, many of which also
have been established in connection
with the MMDA:
(1) $2,500 minimum initial and average
balance requirement;
(2) No interest rate ceiling when the
average balance is equal to or in excess
of $2,500;
(3) The existing NOW account ceiling
(5% percent) applies when the average
balance is less than the minimum
average balance;
(4) Compliance with the average
balance requirement may be determined
over a period of one month;
(5) Institutions must reserve the right
to require at least seven days’ notice
prior to withdrawal;
(6) Loans are not permitted to meet
the $2,500 minimum amount;
(7) Unlimited deposit and withdrawal
capability; and
(8) Availability to depositors currently
eligible to maintain NOW accounts
under Federal law.
Minimum balance requirement. The
Committee determined to impose an
initial balance requirement of $2,500 on
NOW accounts that are exempt from
rate ceilings. In addition, there will be a
minimum balance requirement of $2,500.
Depository institutions are free to
establish higher balance requirements if
they wish.
Compliance with minimum balance
requirement. As with the MMDA, a
depository institution may determine
compliance with the minimum balance
requirement (but not the minimum initial
balance requirement) by using an
average daily balance calculated over
any computation period it chooses, such
as one day, one week or one month,
provided that such a computation period
is no longer than a month. A “month” is
defined to be either a calendar month or
statement cycle (or similar period) of at
least 28 days but no longer than 31 days,
except that a statement cycle
occasionally may be as long as 35 days.
Thus, for example, an institution could
choose to determine compliance with
the minimum balance requirement
through the use of a one-week
computation period. A depositor will
have met the requirement if the average
daily balance in the account during the
one week computation period is equal to
or above $2,500. In order to ensure
compliance with the account’s minimum
initial deposit and balance
requirements, the Committee prohibited
loans for the purpose of meeting those
requirements.
The current ceiling on NOW accounts
(5 Y* percent) will continue to apply to
NOW accounts that have balances of
less than $2,500 and to other NOW
accounts that are not subject to the
conditions under which a NOW account
may be offered without regard to a
ceiling rate. The 5 K percent NOW
account ceiling rate will apply
entire computation period in which the
average balance in the account i-s less
than $2,500. For example, an institution
which uses an average balance
computed over a seven-day period may
pay a depositor a rate not in excess of
5 y4 percent for the entire seven-day
period if the depositor’s average daily
balance during that seven-day period is
less than $2,500. Depending on the
computation period chosen and the
interest crediting practices of the
institution, the lower rate may have to
be imposed on ata ex post basis.
Guarantee of rate. The Committee
determined to impose a maximum
limitation of one month (as defined
above) on the length of time a
depository institution may commit itself
to pay any rate of interest or commit
itself to employ any method of
calculation of the rate of interest on the
new account. The Committee also
determined to prohibit an institution
from conditioning the rate of interest
paid or the method of calculation of the
rate of interest paid on the new account
on the length of time a deposit is
maintained, if that length of time is
longer than a month (as defined above).
For example, a depository institution
may not obligate itself to pay the 91-day
Treasury bill rate for a period of six
months. Nor may a depository
institution, in effect, guarantee a
specified or indexed rate of interest for
over one month by agreeing to pay a
rate (e.g., 30%) for one month on the
condition that the deposit will be
maintained for over one month [e.g., 180
days).
Reservation of notice. The Committee
imposed a requirement that institutions
reserve the right to require at least
seven days’ prior notice of withdrawals
or transfers from NOW accounts not
subject to a ceiling rate. The Committee
determined that if an institution chooses
to exercise its right to require notice, it
must apply that requirement equally to
all depositors that maintain accounts
subject to the new interest payment
rules.
Additions to the account. The
Committee determined to impose no
restrictions on the size or frequency of
additions to the new account, including
additions effected by sweeps from other
accounts into the new-account.
Transactions and withdrawals. As
with existing NOW accounts, depository
institutions may permit withdrawals to
be made from ceiling-free NOW
accounts by any means and without
limit as to size or frequency.
Eligible depositors. The class of
depositors eligible to maintain NOW
accounts is specified in the Consumer
Checking Account Equity Act of 1980 (12
4
U.S.C. 1832(a)), section 706 of the C -,rnSt Germain Act (96 Stat. 1540), and
regulations of the Federal Reserve Board
(12 CFR 217.157), the Federal Deposit
Insurance Corporation (12 CFR 329.103)
and the Federal Home Loan Bank Board
(12 CFR 532.2). Under the Consumer
Checking Account Equity Act, NOW
accounts may consist of “funds in which
the entire beneficial interest is held by
one or more individuals or by an
organization which is operated primarily
for religious, philanthropic, charitable,
educational or other similar purposes
and which is not operated for profit.”
The Garn-St Germain Act extends NOW
account eligibility to funds of “the
United States, any State, county
municipality or political subdivision
thereof, the District of Columbia, the
Commonwealth of Puerto Rico,
American Samoa, Guam, any territory or
possession of the United States, or any
political subdivision thereof.” These are
the only depositors that are permitted to
have NOW accounts. Deposits in which
any beneficial interest is held by a
corporation, partnership, association, or
other organization that is operated for
profit or is not operated primarily for
religious, philanthropic, charitable,
educational, fraternal or other similar
purposes, or that is not a governmental
unit may not be classified as NOW
accounts.
Reserve requirements. Currently,
under the Federal Reserve Board’s
Regulation D—Reserve Requirements of
Depository Institutions (12 CFR Part
204), all NOW accounts are subject to
the same reserve requirements. In this
regard, a depository institution is
subject to a full reserve requirement of 3
percent on the first $26.3 million tranche
of its NOW accounts and to a 12 percent
reserve requirement on amounts above
$26.3 million. Depository institutions in
the New England states, New York, and
New Jersey are subject to a phase-in of
reserve requirements on such accounts.
Depository institutions will have the
option of modifying the rate of interest
paid on existing NOW accounts or of
offering a new account not subject to a
rate ceiling. Where the interest rate is
changed on an existing account, other
specified conditions applicable to the
MMDA also must be met.
The Committee believes that this
action will assist depository institutions
in competing with other financial
instruments that offer market rates of
return on short-term investments, such
as MMFs. The ability to offer $2,500
(a) At a rate not to exceed 5)i percent
per annum, or
(b) (1) At any rate on an account
subject to the conditions of this
paragraph with an initial balance of no
less than $2,500 and an average deposit
balance (as computed in paragraph
(b)(2) of this section) of no less than
$2,500. However, for an account with an
average balance of less than $2,500, a
depository institution shall not pay
interest in excess of the rate specified in
paragraph (a) of this section for the
entire computation period, as described
in paragraph (b)(2) of this section.
(2) The average balance in paragraph
(b)(1) of this section may be calculated
on the basis of the average daily
balance over any computation period
selected by an institution which is not
longer than one month. (For purposes of
this paragraph (b) of this section,
“month” shall mean, at a depository
institution’s option, a calendar month or
statement cycle. A statement cycle is
normally 28 to 31 days, but may
occasionally be as long as 35 days.)
(3) A depository institution may not
obligate itself to pay any interest rate or
obligate itself to employ any method of
calculation of an interest rate on this
account for a period longer than one
month. A depository institution may not
condition the interest rate paid upon the
period of time the funds remain on
deposit in this account, if that period is
longer than one month.
(4) Depository institutions must
reserve the right to require at least
seven days’ notice prior to withdrawal
or transfer of any funds in this account.
PART 1204—[AMENDED]
a requirement for a notice period
Pursuant to its authority under Title II Ifis such
imposed
by a depository institution on
of Pub. L. 96-221 (94 Stat. 142; 12 U.S.C. one depositor,
it must be applied equally
3501 et seq.) to prescribe rules governing to all other depositors
holding an
the payment of interest and dividends
account
subject
to
this
paragraph at the
on deposits and accounts of federally
institution.
insured commercial banks, savings and same
(5) A depository institution is not
loan associations, and mutual savings
permitted
to lend funds to a depositor to
banks, the Committee amends Part 1204 meet the $2,500
(Interest on Deposits), effective January this paragraph. balance requirements of
5,1982, as follows:
2. In § 1204.122, by revising paragraph
1. By revising § 1204.108 to read as
(a),
to read as follows:
follows;
minimum balance NOW accounts not
subject to a rate ceiling should assist
depository institutions 1o attract new
funds by competing with other
investment alternatives, help stem
deposit outflows, and enhance the
ability of institutions to attract and
retain valuable customer relationships.
The Committee considered the
potential effect on small entities of
removing the interest rate ceiling on
NOW accounts of $2,500 or more, as
required by the Regulatory Flexibility
Act (5 U.S.C. 603 et seq.). In this regard,
the Committee’s action would not
impose any new reporting or
recordkeeping requirements. Small
entities that are depositors generally
should benefit from the Committee’s
action since removing the interest rate
ceiling on NOW accounts above $2,500
will provide them a market rate of
return on short-term deposits. The
competitive position of small depository
institutions vis-a-vis nondepository
competitors should be enhartced by their
ability to offer a more competitive short
term instrument with unlimited
transactions capability at market rates.
The new funds that will be attracted as
a result of this action (or the retention of
deposits that might otherwise have left
the institution) could be invested at a
positive spread and would therefore at
least partially offset the higher cost
associated with the shifting of lowyielding accounts.
List of Subjects in 12 CFR Part 1208
Banks, banking.
§ 1204.108 Maximum rates of interest
payable by depository institutions on
deposits subject to negotiable orders of
withdrawal.
Commercial banks, savings and loan
associations, and mutual savings banks
(‘‘depository institutions") may pay
interest on any deposit or account
subject to negotiable or transferable
orders of withdrawal that is authorized
pursuant to 12 U.S.C. 1832(a).
§ 1204.122
account.
Money market deposit
(a) Commercial banks, mutual savings
banks, and savings and loan
associations ("depository institutions”)
may pay interest at any rate on a
deposit account as described in this
section with an initial balance of no less
than $2,500 and an average deposit
balance (as computed in paragraph (b)
of this section) of no less than $2,500.
5
However, for an account with an
average balance of less than $2,500, a
depository institution shall not pay
interest in excess of the ceiling rate for
NOW accounts (12 CFR 1204.108(a)) for
the entire computation period, as
described in paragraph (b) of this
section.
* * * * *
By order o f the Comm ittee, D ecem ber 14,
1982.
Mark Bender,
Acting Executive Secretary.
[FR Doc. 82-34269 Filed 12-15-82: 8:45 am)
BILLING CODE 4810-25-M
12 CFR Part 1204
[D ocket No. D -0029]
Short-Term Time Deposit Accounts
a g e n c y : Depository Institutions
Deregulation Committee.
ACTION: Final rule.
SUMMARY: The Depository Institutions
Deregulation Committee (“Committee")
has amended its rules to remove the
ceiling on the rate of interest payable on
7- to 31-day time deposits and to lower
the minimum denomination requirement
on this account, as well as the 91-day
time deposit and 26-week money market
time deposit (“MMC”), to $2,500. The
existing minimum denomination
requirements on these deposits are
$20,000, $7,500, and $10,000, respectively.
The Committee’s actions were taken to
conform the minimum denominations of
these accounts with the Money Market
Deposit Account ("MMDA”) and
because the interest rate ceiling on the
7- to 31-day account is not necessary in
light of the establishment of the MMDA,
which may be offered for similar time
periods.
EFFECTIVE DATE: January 5,1983.
FOR FURTHER INFORMATION CONTACT.
Paul S. Pilecki, Senior Attorney, Board
of Governors of the Federal Reserve
Syafem (202/452-3281); Alan Priest,
Attorney, Office of the Comptroller of
the Currency (202/447-1880); F. Douglas
Birdzell, Counsel, and Joseph A.
DiNuzzo, Attorney, Federal Deposit
Insurance Corporation (202/389-4147);
Rebecca Laird, Senior Associate
General Counsel, Federal Home Loan
Bank Boafd (202/377-6446); or Elaine
Boutilier, Attorney-Adviser, Treasury
Department (202/566-8737).
SUPPLEMENTARY INFORMATION: The
Depository Institutions Deregulation Act
of 1980 (Title II of Pub. L. No. 96-221; 12
U.S.C. 3501 et seq.) ("DIDA”) was
enacted to provide for the orderly
phaseout and ultimate elimination of the
limitations on the maximum rates of
interest and dividends that may be paid
on deposit accounts by depository
institutions as rapidly as economic
conditions warrant. Under DIDA, the
Committee is authorized to phase out
interest rate ceilings by any one of a
number of methods including the
creation of new account categories not
subject to interest rate limitations or
with interest rate ceilings set at market
rates of interest.
Pursuant to this statutory
authorization, the Committee’s rules set
forth a number of deposit categories
bearing market rates of interest. Among
these are 7- to 31-day time deposits (12
CFR 1204.121), 91-day time deposits (12
CFR 1204.120) and MMCs (12 CFR
1204.104). These accounts have
minimum denomination requirements of
$20,000, $7,500 and $10,000, respectively,
and ceiling rates of interest on these
accounts generally are based on the 91day U.S. Treasury bill rate (auction
average on a discount basis) for the 7- to
31-day and 91-day accounts, and the 26week U.S. Treasury bill rate (auction
average on a discount basis) for MMCs.
The Committee has established a new
deposit account (“MMDA”), as required
by the Gam-St Germain Depository
Institutions Act of 1982, Pub. L. No. 97320 ("Gam-St Germain Act"). The new
deposit account has the following
principal characteristics: (1) An initial
and average balance requirement of no
less than $2,500; (2) a requirement that
depository institutions reserve the right
to require at least seven days’ notice
prior to withdrawal or transfer of funds;
(3) no interest rate ceiling on deposits
which satisfy the initial and average
balance requirements; (4) no more than
six preauthorized, automatic or other
third party transfers per month, of which
no more than three can be checks; and
(5) availability to all depositors. In
addition, at its December 6,1982
meeting, the Committee established a
new rule for the payment of interest on
NOW accounts that have balances of
not less than $2,500 and are subject to
certain of the restrictions that apply to
the MMDA.
Under existing regulations, depository
institutions may guarantee for up to one
month the offering rate on MMDAs.
Therefore, institutions can structure the
new account to substitute for the
existing 7- to 31-day account, rendering
the ceiling on the latter account
meaningless. Thus, the Committee has
amended its regulations to remove that
ceiling. The interest rate ceiling on this
account is currently suspended because
the 91-day bill rate has been below 9
percent and under existing regulations is
scheduled to be removed on May 1,1983.
In designing these and other short
term deposit instruments, the Committee
traditionally has attempted to strike a
balance between enabling institutions to
compete effectively with market
instruments and minimizing the
potential for shifts from lower-yielding
savings deposits. In addition to
establishing fixed maturities, the
Committee has sought to accomplish
this objective through large minimum
denomination requirements on the 7- to
31-day, 91-day, and 26-week accounts.
Now that the Committee has
implemented Section 327 of the Garn-St
Germain Act by authorizing a money
market deposit account with a minimum
denomination of $2,500, the potential for
shifts from lower-yielding savings
deposits is reduced in importance in
establishing the terms on short-term
deposit instruments. Since the MMDA
dominates the other short-term deposits
as a substitute for savings deposits,
altering the minimum denomination on
the other deposit categories is unlikely
to result in any significant further
shifting from lower-yielding accounts.
Consequently, the Committee has
determined that it is appropriate to
reduce to $2,500 the minimum
denomination requirements for the 7- to
31-day account, 91-day account, and
MMC.
The provisions of 5 U.S.C. 553(b)
relating to notice and public
participation have not been followed in
connection with adoption of these
amendments because such actions
involve conforming amendments to
existing regulations that are considered
appropriate in light of the Committee’s
action in establishing the MMDA and
ceilingless NOW account. These
accounts have, as a practical matter,
rendered the ceiling on the 7- to 31-day
account and the minimum denomination
requirements of all three short-term time
deposits meaningless. Thus, the
Committee has determined that notice
and public participation is unnecessary
in connection with this action. In
addition, the Committee has not
deferred the effective date of these
amendments in accordance with 5
U.S.C. 553(d) since these actions relieve
restrictions.
List^jf Subjects in 12 CFR Part 1204
Banks, banking.
PART 1204— [AMENDED]
Pursuant to its authority under Title II
of Pub. L. 96-221 (94 Stat. 142; 12 U.S.C.
3501 et seq.) to prescribe rules governing
the payment of interest and dividends
on deposits and accounts of federally
insured commercial banks, savings and
loan associations, and mutual savings
banks, the Committee amends Part
1204—Interest on Deposits, effective
January 5,1983, to read as follows:
1. By revising the first sentence in
§ 1204.104 to read as follows:
§ 1204.104 26 w eek money market time
deposits o f less than $100,000.
Commercial banks, mutual savings
banks, and savings and loan
associations may pay interest on any
nonnegotiable time deposit of $2,500 or
more, with a maturity of 26 weeks, at a
rate not to exceed the ceiling rates set
forth below. * * *
2. In § 1204.120, by revising paragraph
(a) to read as follows:
§ 1204.120 91-day time deposits of less
than $100,000.
(a) Commercial banks, mutual savings
banks, and savings and loan
associations may pay interest on hny
negotiable or nonnegotiable time deposit
of $2,500 or more, with a maturity of 91
days, at a rate not to exceed the ceiling
rates set forth below. Rounding any rate
upward is not permitted, and interest
may not be compounded during the term
of this deposit.
* * * * *
3. In § 1204.121, by removing
paragraph (b), by redesignating
paragraph (c) as (b), and by revising the
section heading and paragraph (a) to
read as follows:
§ 1204.121 7- to 31-day tim e deposits of
$2,500 or more.
(a) Commercial banks, mutual savings
banks, and savings and loan
associations may pay interest at any
rate as agreed to by the depositor on
any nonnegotiable time deposit of $2,500
or more, with a maturity or required
notice period of not less than 7 days nor
more than 31 days. However, a
depository institution shall not pay
interest in excess of the ceiling rate for
regular savings deposits or accounts on
any day the balance in a time deposit
issued under this section is less than
$2,500.
* * * * *
By
1982.
order of the Committee, Decem ber 14,
Mark Bender,
Acting Executive Secretary.
(FR Doc. 82-34267 Filed 12-15-62: 8:45 am]
BILLING CODE 4810-25-M
6
@FedFRASER