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November 30, 1982
To All State Member Banks in the
Second Federal Reserve District:
As indicated in Circular No. 9408, dated November 22, 1982,
the Depository Institutions Deregulation Committee (DIDC) has approved
the offering of a new federally insured money market account.
Enclosed
is the complete text of the ruling issued by the DIDC in this matter.
Questions thereon may be directed to the Consumer Affairs and Bank
Regulations Department of this Bank (Tel. No. 212-791-5914).
Circulars Division
FEDERAL RESERVE BANK OF NEW YORK
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
Washington, D.C. 20220
IESS RELEASE
November
24,
1982
R e g u l a t i o n s for the
Money Market Deposit Account
The D I D C r e l e a s e d t o d a y the final r e g u l a t i o n s on the
n e w m o n e y m a r k e t d e p o s i t a c c o u n t m a n d a t e d by the G a r n St G e r m a i n D e p o s i t o r y I n s t i t u t i o n s A c t of 1982.
T he n e w
a c c o u n t c a n be o f f e r e d by F e d e r a l l y i n s u r e d c o m m e r c i a l
b a n k s , s a v i n g s and l o a n a s s o c i a t i o n s and m u t u a l s a v i n g s
b a n k s b e g i n n i n g D e c e m b e r 14, 1982.
The r e g u l a t i o n
attached.
a nd
explanatory
information
are
Attachment
ptr oller of th e currency
ERAL RESERVE BOARD
FEDERAL DEPOSIT INSURANCE CORPORATION
NATIONAL CREDIT UNION ADMINISTRATION
FEDERAL HOME LOAN BANK BOARD
DEPARTMENT OF THE TREASURY
DEPOSITORY
INSTITUTIONS
12 C. F . R .
DEREGULATION COMMITTEE
P art
( D ocket No.
Money Market
AGENCY:
Depository
ACTION:
Final
D - 0026)
Deposit
Institutions
1204
Account
Deregulation
Committee.
Rule.
SUMMARY:
The D e p o sitory Institutions D e r e g ulation C o m m ittee
( " C o m m i t t e e " ) has e s t a b l i s h e d a n e w d e p o s i t a c c o u n t as r e q u i r e d
by the G a r n - S t G e r m a i n D e p o s i t o r y I n s t i t u t i o n s Act of 1982, Pub.
L. No. 9 7 - 3 2 0 ("Gar n - S t G e r m a i n A c t " or "Act").
T h i s n ew a c c o u n t
w i l l be an i n s u r e d d e p o s i t a c c o u n t u nder 12 U .S.C. §§ 1726 and
1813.
T he n e w d e p o s i t a c c o u n t has the f o l l o w i n g p r i n c i p a l
characteristics:
(1) an i n i t i a l d e p o s i t o f no l e s s t h a n $2,500;
(2) an a v e r a g e b a l a n c e r e q u i r e m e n t of no l e s s t h a n $ 2 , 5 0 0 w h e r e
the a v e r a g e b a l a n c e m a y be c o m p u t e d o v e r a ny p e r i o d up to one
m o n t h at a d e p o s i t o r y i n s t i t u t i o n ' s d i s c r e t i o n ; (3) no m i n i m u m
m a t u r i t y r e q u i r e m e n t ; (4) a r e q u i r e m e n t that d e p o s i t o r y i n s t i t u t i o n s
r e s e r v e the r ight to r e q u i r e at l e a s t s e v e n d a y s n o t i c e pr i o r to
w i t h d r a w a l or t r a n s f e r of funds; (5) no i n t e r e s t rate c e i l i n g on
d e p o s i t s w h i c h s a t i s f y the i n i t i a l and a v e r a g e b a l a n c e r e q u i r e m e n t s ;
(6) a c e i l i n g eq u a l to the N O W a c c o u n t rate c e i l i n g for d e p o s i t s
w h i c h do not m e e t the a v e r a g e b a l a n c e r e q u i r e m e n t ; (7) no m o r e
than six p r e a u t h o r i z e d , a u t o m a t i c or o t h e r t h i r d p a r t y t r a n s f e r s
per m o n t h , of w h i c h no m o r e than t h r e e can be c h e c k s ; and (8)
a v a i l a b i l i t y to all d e p o s i t o r s .
EFFECTIVE
DATE:
December
14,
1982.
FOR FURTHER INFORMATION CONTACT:
Alan Priest, Attorney, Office
of the C o m p t r o l l e r of the C u r r e n c y ( 2 0 2 / 4 4 7 - 1 8 8 0 ) ; F. D o u g l a s
B i r d z e l l , C o u n s e l , and J o s e p h A. D i N u z z o , A t t o r n e y , F e d e r a l
D e p o s i t I n s u r a n c e C o r p o r a t i o n ( 2 0 2 / 3 8 9 - 4 1 4 7 ) ; R e b e c c a Laird,
Senior A s s ociate General Counsel, Federal Home Loan Bank Board
( 2 0 2 / 3 7 7 - 6 4 4 6 ) ; Paul S. P i l e c k i , S e n i o r A t t o r n e y , B o a r d of
G o v e r n o r s of the F e d e r a l R e s e r v e S y s t e m ( 2 0 2 / 4 5 2 - 3 2 8 1 ) ; or E l a i n e
Boutilier, Attorney-Adviser, Treasury Department (202/566-8737).
L I S T OF S U B J E C T S
IN 12 C F R Part
1204:
Ba n k s ,
banking.
SUPPLEMENTARY INFORMATION:
The D e p o s i t o r y I n s t i t u t i o n s
D e r e g u l a t i o n A c t of 1980 (Title II of P.L. No. 9 6 - 2 2 1 ; 12 U.S. C.
S§ 3501 e_t s e q . ) ("DIDA") w a s e n a c t e d to p r o v i d e for the o r d e r
p h a s e out and u l t i m a t e e l i m i n a t i o n of the l i m i t a t i o n s on the
m a x i m u m r a t e s of i n t e r e s t and d i v i d e n d s that m a y be p aid on
iy
2
d e p o s i t a c c o u n t s by d e p o s i t o r y i n s t i t u t i o n s as r a p i d l y as e c o n o m i c
conditions warrant.
U n d e r D I D A , the C o m m i t t e e is a u t h o r i z e d to
p h a s e o u t i n t e r e s t r a t e c e i l i n g s by a n y o n e of a n u m b e r of m e t h o d s
i n c l u d i n g the c r e a t i o n o f n e w a c c o u n t c a t e g o r i e s not s u b j e c t to
i n t e r e s t r a t e l i m i t a t i o n s or w i t h i n t e r e s t rate c e i l i n g s set at
mar k e t rates of interest.
T h e D I D A w a s a m e n d e d by s e c t i o n 327 of the G a r n - S t G e r m a i n Act.
T h a t A c t r e q u i r e s the C o m m i t t e e to " i s s u e a r e g u l a t i o n a u t h o r i z i n g
a n e w d e p o s i t a c c o u n t , e f f e c t i v e no la t e r tfran [ D e c e m b e r 14,
1982]."
T h e A c t a l s o p r o v i d e s that the n e w a c c o u n t "shall be
d i r e c t l y e q u i v a l e n t to and c o m p e t i t i v e w i t h m o n e y m a r k e t m u t u a l
f u n d s r e g i s t e r e d w i t h the S e c u r i t i e s and E x c h a n g e ^ C o m m i s s i o n
u n d e r the I n v e s t m e n t C o m p a n y Act of 1 9 4 0 . "
T he A ct f u r t h e r p r o v i d e s
t hat " [ n ] o l i m i t a t i o n on the m a x i m u m r ate or r a t e s of i n t e r e s t
p a y a b l e on d e p o s i t a c c o u n t s s hall a p p l y to the [new] a c c o u n t . "
F i n a l l y , the A c t p r o v i d e s that the n e w a c c o u n t "shall not be
s u b j e c t to t r a n s a c t i o n a c c o u n t r e s e r v e s , e v e n t h o u g h no m i n i m u m
m a t u r i t y is r e q u i r e d , and e v e n t h o u g h up to t h r e e p r e a u t h o r i z e d
or a u t o m a t i c t r a n s f e r s and t h r e e t r a n s f e r s to t h i r d p a r t i e s are
permitted monthly."
T h e C o m m i t t e e r e q u e s t e d c o m m e n t s on the n ew a c c o u n t r e q u i r e d by
the G a r n - S t G e r m a i n Act.
47 Fed. Reg. 4 6 5 3 0 (October 19, 1982).
T h e c o m m e n t s a re s u m m a r i z e d below.
Comments
On O c t o b e r 19, 1982, the C o m m i t t e e p u b l i s h e d in the F e d e r a l R e g i s t e r
a r e q u e s t for c o m m e n t s on the n e w a c c o u n t .
The A ct r e q u i r e s the
C o m m i t t e e to i s s u e a r e g u l a t i o n that a u t h o r i z e s the new a c c o u n t
e f f e c t i v e no l a t e r t h a n D e c e m b e r 14, 1982.
Thus, in o r d e r to
p e r m i t the C o m m i t t e e to a n a l y z e the c o m m e n t s , and to p e r m i t a d e q u a t e
t i m e for d e p o s i t o r y i n s t i t u t i o n s to be a b l e to o f f e r the new
a c c o u n t by D e c e m b e r 14, 1982, the r e q u e s t for c o m m e n t s s t a t e d
t h a t c o m m e n t s m u s t be r e c e i v e d by N o v e m b e r 3, 1982.
T h e request
for c o m m e n t s l i s t e d a n u m b e r of s p e c i f i c i s s u e s u p o n w h i c h c o m m e n t s
were solicited.
It a l s o s o l i c i t e d c o m m e n t on a ny o t h e r a s p e c t of
the a c c o u n t w h i c h the p u b l i c w i s h e d to a d d r e s s , p a r t i c u l a r l y w i t h
r e s p e c t to c h a r a c t e r i s t i c s that w o u l d m a k e the a c c o u n t " d i r e c t l y
e q u i v a l e n t to and c o m p e t i t i v e w i t h " m o n e y m a r k e t funds.
T h e C o m m i t t e e r e c e i v e d 1 , 2 2 7 c o m m e n t l e t t e r s by N o v e m b e r 3, 1982.
A n a d d i t i o n a l 233 l e t t e r s w e r e r e c e i v e d a f t e r that d a t e and c o n s i d e r e d
by the C o m m i t t e e at its p u b l i c m e e t i n g on N o v e m b e r 15, 1982.
The
c o m m e n t e r s i n c l u d e d 904 c o m m e r c i a l b a n k s and b ank h o l d i n g c o m p a n i e s ,
347 s a v i n g s a n d l o a n a s s o c i a t i o n s , 67 m u t u a l s a v i n g s banks, 4
c r e d i t u n i o n s , 18 s t a t e and f e d e r a l r e g u l a t o r s , 5 m o n e y m a r k e t
m u t u a l f u n d s a nd r e l a t e d i n s t i t u t i o n s , 39 d e p o s i t o r y i n s t i t u t i o n
t r a d e a s s o c i a t i o n s and 76 i n d i v i d u a l s or o t h e r b u s i n e s s e s .
3
A g r e a t m a j o r i t y of the c o m m e n t e r s e x p r e s s e d s t r o n g s u p p o r t for
the c r e a t i o n of the n e w a c c o u n t u n d e r the G a r n - S t G e r m a i n Act
that w o u l d a l l o w d e p o s i t o r y i n s t i t u t i o n s to c o m p e t e m o r e e f f e c t i v e l y
w i t h m o n e y m a r k e t funds.
A s i g n i f i c a n t n u m b e r of c o m m e n t e r s
u r g e d the C o m m i t t e e not to l i m i t the a c c o u n t ' s c o m p e t i t i v e n e s s
and m a r k e t a b i l i t y t h r o u g h e x c e s s i v e r e g u l a t i o n of its f e a t u r e s .
A l t h o u g h s u p p o r t for the g e n e r a l c o n c e p t of the n e w c o m p e t i t i v e
a c c o u n t w a s v e r y s t r o n g , s ome c o m m e n t e r s d i d e x p r e s s s e r i o u s
concerns.
For e x a m p l e , a n u m b e r of c o m m e n t e r s felt that f e d e r a l
d e p o s i t i n s u r a n c e on the n e w a c c o u n t m i g h t g i v e d e p o s i t o r y i n s t i t u t i o n s
a c o m p e t i t i v e a d v a n t a g e o v e r m o n e y m a r k e t funds.
S i m i l a r l y , at
l e a s t o n e c o m m e n t e r felt that d e p o s i t o r y i n s t i t u t i o n s w o u l d h a v e
a c o m p e t i t i v e a d v a n t a g e over m o n e y m a r k e t fu n d s if no r e s t r i c t i o n s
w e r e i m p o s e d on the i n t e r e s t p a y a b l e on the n e w a c c o u n t .
Other
c o m m e n t e r s e x p r e s s e d c o n c e r n that the c o s t to d e p o s i t o r y i n s t i t u t i o n s
of s h i f t s of f u n d s f r o m l ower y i e l d i n g d e p o s i t a c c o u n t s to the
n e w a c c o u n t m i g h t w e a k e n s ome d e p o s i t o r y i n s t i t u t i o n s .
Most
c o m m e n t e r s w h o e x p r e s s e d the a b o v e c o n c e r n s u r g e d the C o m m i t t e e
to m e e t t hose c o n c e r n s t h r o u g h a p p r o p r i a t e s t r u c t u r i n g of the n ew
account.
In a d d i t i o n to g i v i n g their g e n e r a l a p p r a i s a l s of the n e w a c c o u n t ,
m o s t c o m m e n t e r s a d d r e s s e d the s p e c i f i c i s s u e s u p o n w h i c h the
Committee solicited comments.
T h e fi r s t of t h e s e i s s u e s is the
a p p r o p r i a t e m i n i m u m i n i t i a l d e p o s i t r e q u i r e m e n t (if any) r e g a r d i n g
the n e w a c c o u n t .
T h e r e w a s no g e n e r a l c o n s e n s u s on this issue.
A p p r o x i m a t e l y 60 p e r c e n t of the c o m m e r c i a l b ank c o m m e n t e r s felt
that the r e q u i r e d i n i t i a l d e p o s i t s h o u l d be u n d e r $5, 0 0 0 .
Banks
e x p r e s s i n g this p r e f e r e n c e w e r e d i v i d e d as to w h e t h e r the a c c o u n t
m i n i m u m s h o u l d be left to e a c h i n s t i t u t i o n ' s d i s c r e t i o n or e s t a b l i s h e d
( g e n e r a l l y in the a m o u n t of $2,500) by the C o m m i t t e e .
Approximately
22 p e r c e n t of the t h r i f t i n s t i t u t i o n c o m m e n t e r s s u p p o r t e d i n s t i t u
t i o n a l d i s c r e t i o n , o v e r h a l f s u p p o r t e d a m i n i m u m l e s s than or
e q u a l to $ 3 , 0 0 0 ( g e n e r a l l y at the $ 2 , 5 0 0 lev e l ) , and 26 p e r c e n t
s u p p o r t e d an a c c o u n t m i n i m u m o v e r $ 3 , 0 0 0 (with $ 5 , 0 0 0 the m o s t
c o m m o n p r e f e r e n c e of t his g r o u p ) . T h e r e w a s no c o n s e n s u s r e g a r d i n g
the i n i t i a l m i n i m u m b a l a n c e a m o n g i n d i v i d u a l s and b u s i n e s s e s ,
t r a d e a s s o c i a t i o n or m o n e y m a r k e t fund r e l a t e d c o m m e n t e r s .
However,
i n d i v i d u a l s and b u s i n e s s e s m o s t f r e q u e n t l y c i t e d a p r e f e r e n c e for
i n s t i t u t i o n a l d i s c r e t i o n on this issue.
T he m o s t c o m m o n c o n c e r n c i t e d in j u s t i f y i n g a h i g h m i n i m u m b a l a n c e
w a s the c o s t i m p a c t of f u n d s i n t e r n a l l y s h i f t i n g o u t of low y i e l d i n g
s a v i n g s a c c o u n t s i nto the n e w h i g h e r y i e l d i n g a c c o u n t .
Those
a d v o c a t i n g a l o w e r m i n i m u m d e n o m i n a t i o n o f t e n m e n t i o n e d the need
for the a c c o u n t to be c o m p e t i t i v e w i t h m o n e y m a r k e t fu n d s b e c a u s e
t h o s e f u n d s t y p i c a l l y h a v e l ow m i n i m u m s .
4
T h e C o m m i t t e e a l s o s o l i c i t e d c o m m e n t s on a m i n i m u m m a i n t e n a n c e
balance.
O f t e n c i t i n g a d e s i r e for a c c o u n t s i m p l i c i t y , a m a j o r i t y
o f all c o m m e n t e r s ( i n c l u d i n g 62 p e r c e n t of the d e p o s i t o r y i n s t i t u
t i o n s and 70 p e r c e n t of the t r a d e a s s o c i a t i o n s ) i n d i c a t e d that
the m i n i m u m m a i n t e n a n c e b a l a n c e s h o u l d be the s a m e as the m i n i m u m
a m o u n t r e q u i r e d to o p e n the a c c o u n t .
However, regulators, money
m a r k e t funds, and i n d i v i d u a l s and o t h e r b u s i n e s s e s t e n d e d to
support institutional dis c r e t i o n regarding m a i n tenance balances.
T h o s e c o m m e n t e r s that s u p p o r t e d a m a i n t e n a n c e b a l a n c e d i f f e r e n t
f r o m any m i n i m u m i n i t i a l b a l a n c e o f t e n n o t e d that m o n e y m a r k e t
f u n d s g e n e r a l l y a l l o w i n v e s t o r s ' b a l a n c e s to d e c l i n e b e l o w their
initial required investment without penalty.
C o m m e n t w a s a l s o s p e c i f i c a l l y s o l i c i t e d on w h e t h e r i n s t i t u t i o n s
s h o u l d be r e q u i r e d to p a y a l o w e r r ate on d e p o s i t s w h i c h fall
b e l o w any m i n i m u m m a i n t e n a n c e b a l a n c e the C o m m i t t e e m a y impose.
S i x t y five p e r c e n t of the d e p o s i t o r y i n s t i t u t i o n c o m m e n t e r s and a
m a j o r i t y of i n d i v i d u a l s s u p p o r t e d a m a n d a t o r y l o w e r rate on b a l a n c e s
below any required m a i n t e n a n c e balance.
M a n y of t h e s e c o m m e n t e r s
i n d i c a t e d that the c o s t of m a i n t a i n i n g s mall a c c o u n t s w i t h t r a n s
a c t i o n f e a t u r e s w o u l d w a r r a n t a lo w e r i n t e r e s t rate.
In c o n t r a s t ,
a m a j o r i t y of r e g u l a t o r s f a v o r e d l e a v i n g the rate p a y a b l e on
b a l a n c e s un d e r a ny m a i n t e n a n c e b a l a n c e to the d i s c r e t i o n of
depository institutions.
T h o s e f a v o r i n g t his a p p r o a c h o f t e n
n o t e d that m o n e y m a r k e t f u n d s do not p a y a lo w e r rate on small
accounts.
In r e s p o n s e to the C o m m i t t e e ' s r e q u e s t for c o m m e n t on a m i n i m u m
d r a f t d e n o m i n a t i o n r e q u i r e m e n t , a m a j o r i t y of c o m m e r c i a l b a n k s
a nd s a v i n g s and l o a n a s s o c i a t i o n s s t a t e d that this w as a m a t t e r
that s h o u l d be l e f t to a d e p o s i t o r y i n s t i t u t i o n ' s d i s c r e t i o n .
T h i s v i e w w a s a l s o s h a r e d by o v e r 40 p e r c e n t of the m u t u a l s a v i n g s
b a n k s a nd l a r g e m a j o r i t i e s of r e g u l a t o r s , t r a d e a s s o c i a t i o n s and
individuals.
In c o n t r a s t , m o n e y m a r k e t m u t u a l f u n d s w e r e in
f a v o r of a m i n i m u m d r a f t d e n o m i n a t i o n r e q u i r e m e n t .
Those opposed
to s u c h a r e q u i r e m e n t a s s e r t e d that it w o u l d be d i f f i c u l t to
e n f o r c e , w o u l d be u n n e c e s s a r y g i v e n e x p e c t e d n u m e r i c a l l i m i t a t i o n s
on t r a n s a c t i o n s , and w o u l d be n o n c o m p e t i t i v e w i t h m o n e y m a r k e t
f u n d s b e c a u s e t h o s e f u n d s are free to set a ny m i n i m u m d e n o m i n a t i o n .
T h o s e f a v o r i n g the r e q u i r e m e n t o f t e n c i t e d t heir p e r c e p t i o n that
a $ 500 m i n i m u m c h e c k d e n o m i n a t i o n is g e n e r a l l y r e q u i r e d by m o n e y
m a r k e t m u t u a l funds.
R e g a r d i n g the d e s i r a b i l i t y of a r e q u i r e m e n t that i n s t i t u t i o n s
r e s e r v e the r i g h t to r e q u i r e s e v e n d a y s (or s ome o t h e r time
p e r i o d ) n o t i c e p r i o r to w i t h d r a w a l f r o m the a c c o u n t , 58 p e r c e n t
of all d e p o s i t o r y i n s t i t u t i o n c o m m e n t e r s w e r e o p p o s e d to such a
5
requirement.
A s u b s t a n t i a l m a j o r i t y of all o t h e r c l a s s e s of
c o m m e n t e r s , w i t h the e x c e p t i o n of m o n e y m a r k e t f u n d s and
i n d i v i d u a l s , a l s o o p p o s e d the r e q u i r e m e n t .
H o w e v e r , s o m e of
th e s e c o m m e n t e r s a p p e a r to h a v e m i s t a k e n l y b e l i e v e d that the
i s s u e w a s w h e t h e r d e p o s i t o r y i n s t i t u t i o n s m u s t r e q u i r e *prior
n o t i c e for w i t h d r a w a l s .
T h o s e w h o u n d e r s t o o d that the i ssue
i n v o l v e d o n l y r e s e r v i n g the r i g h t to r e q u i r e n o t i c e m o s t o f t e n
i n d i c a t e d that the r e q u i r e m e n t w o u l d be p e r c e i v e d by d e p o s i t o r s
as r e s t r i c t i n g the l i q u i d i t y of the acc o u n t .
S o m e of t h o s e
c o m m e n t e r s f a v o r i n g the r e q u i r e m e n t -noted that it w o u l d p r o v i d e
d e p o s i t o r y i n s t i t u t i o n s w i t h a m e c h a n i s m w h i c h m a y be n e e d e d in
extraordinary circumstances.
T h e y n o t e d that, g i v e n the r e m o t e
p o s s i b i l i t y of such c i r c u m s t a n c e s , the r ight to r e q u i r e n o t i c e
w o u l d p r o b a b l y n ever be e x e r c i s e d .
C o m m e n t e r s w e r e d i v i d e d on the i ssue of w h e t h e r l o a n s to a
d e p o s i t o r s h o u l d be p e r m i t t e d for the p u r p o s e of a l l o w i n g the
d e p o s i t o r to m e e t any i n i t i a l d e p o s i t r e q u i r e m e n t .
Regulators,
t r a d e a s s o c i a t i o n s and a s l i g h t m a j o r i t y of c o m m e r c i a l b a n k s
t h o u g h t s u c h l o a n s s h o u l d be p e r m i t t e d , w h i l e m o n e y m a r k e t f u n d s
and 75 p e r c e n t of the t h r i f t s t h o u g h t s u c h l o a n s s h o u l d not be
permitted.
T h o s e f a v o r i n g the l o a n s n o t e d that m o n e y m a r k e t
f u n d s are s u b j e c t to no l o a n r e s t r i c t i o n s and f u r t h e r s t a t e d that
a n y p r o h i b i t i o n o n l o a n s w o u l d be d i f f i c u l t to e n f o r c e .
Those
o p p o s e d to the l o a n s f elt t h e y w o u l d u n d e r m i n e a ny m i n i m u m
i n i t i a l d e p o s i t r e q u i r e m e n t the C o m m i t t e e m a y adopt.
R e g a r d i n g the i ssue of a d d i t i o n a l d e p o s i t s i nto the a c c o u n t ,
i n c l u d i n g s w e e p s f r o m o t h e r a c c o u n t s , s u b s t a n t i a l m a j o r i t i e s of
all c a t e g o r i e s of c o m m e n t e r s s t a t e d that no s u c h r e s t r i c t i o n s
s h o u l d be i mposed.
T h e C o m m i t t e e a l s o r e q u e s t e d c o m m e n t s on the e s t a b l i s h m e n t of a
m a x i m u m m a t u r i t y r e q u i r e m e n t on the a c c o u n t and on the i m p o s i t i o n
of r e s t r i c t i o n s on the m a x i m u m time p e r i o d a d e p o s i t o r y i n s t i t u t i o n
c o u l d g u a r a n t e e an i n t e r e s t rate.
C o m m e n t e r s as a w h o l e w e r e
s t r o n g l y o p p o s e d to a r e q u i r e d m a x i m u m m a t u r i t y .
However, results
w e r e m i x e d r e g a r d i n g the issue of a m a x i m u m p e r i o d for w h i c h a
rate of i n t e r e s t c o u l d be g u a r a n t e e d .
M o n e y m a r k e t f u n d s and
m u t u a l s a v i n g s b ank t r a d e g r o u p s u n a n i m o u s l y f a v o r e d s u c h a
r e s t r i c t i o n and a m a j o r i t y of m u t u a l s a v i n g s b a n k s s h a r e d this
view.
In c o n t r a s t , a m a j o r i t y of c o m m e r c i a l banks, r e g u l a t o r s ,
t h r i f t s , t r a d e a s s o c i a t i o n s and i n d i v i d u a l s p r e f e r r e d no
restriction.
T h o s e f a v o r i n g the r e s t r i c t i o n m o s t f r e q u e n t l y
m e n t i o n e d a m a x i m u m rate g u a r a n t e e p e r i o d of s e v e n days, but m a n y
f a v o r i n g the r e s t r i c t i o n s u g g e s t e d e i t h e r f r o m 7 to 30 d a y s or 30
d a y s or more.
T h o s e f a v o r i n g the r e s t r i c t i o n felt that, if it
w e r e not i mposed, all i n t e r e s t r ate r e g u l a t e d a c c o u n t s w o u l d be
effectively deregulated.
T h o s e o p p o s i n g the r e s t r i c t i o n s t a t e d
that its a b s e n c e w o u l d a s s i s t a s s e t / 1 i a b i l i t y m a n a g e m e n t , p r o v i d e
f l e x i b i l i t y and e n h a n c e the c o m p e t i t i v e n e s s of the n e w a c count.
6
The request for comments also included the issue of appropriate
enforcement requirements regarding any monthly numerical limits
the Committee may establish concerning transactions on the
account.
The Committee specifically requested comments- on the
d esirability of monitoring accounts on an ex post basis, the
appropriate definition of month, and whether the date on which a
draft is written or the date on which it is paid by an institu
tion should control for purposes of any monthly limit on the
number of drafts.
A large majority of commenters favored
enforcement through ex post monitoring.
However, there was also
significant support for leaving the enforcement method to an
i n s t i t u t i o n ’s discretion.
Finally, 12 percent of the commenters
favored a requirement that all drafts over a numerical limit be
dishonored.
Often citing the processing difficulties involved in
reading the date of a draft, two thirds of the commenters indicated
a preference for using the date of payment, rather than the date
a draft is written, for monitoring compliance.
However, some
commenters noted that use of the date of payment might cause
inadvertent violations of a numerical limit where payees held
checks for substantial periods prior to obtaining payment.
Roughly one fourth of the commenters indicated that the
institution should be able to choose either the date on which a
draft is written or the date upon which it is paid.
With regard
to the definition of month for compliance purposes, no consensus
was reached.
A slight plurality of commenters favored a statement
cycle, but institutional discretion and the calendar month were
also strongly supported.
The Committee also requested comments on whether any restrictions
should be established regarding overdraft credit arrangements
offered in connection with the new account.
Often citing the
need for flexibility and competitiveness, a majority of depository
institutions, regulators, trade associations and individuals
opposed any restriction on overdraft arrangements.
However,
money market funds took the opposite position.
Those commenters
favoring a restriction indicated that the new account is not a
transaction account and, therefore, the accommodation of overdrafts
would be inappropriate.
The requfest for comment asked whether the Committee should allow
unlimited withdrawals by mail, telephone, messenger, or in person.
The request for comments noted in this regard that it was the
opinion of the Committee's staff that telephone transfers should
be regarded as preauthorized transfers if the transfer is to a
third person or to another deposit account of the same depositor.
Over 70 percent of the commenters favored unlimited withdrawals
of the type specified in the request for comments.
In addition,
many commenters disagreed with the staff's opinion that telephone
transfers from the new account to another account of the same
depositor should be considered as preauthorized transfers.
Regarding whether 30 days (or some other period) would be
sufficient lead time for institutions to implement operational
changes for the new account, commenters were almost evenly
divided.
Many commenters noted that the time needed would be
directly related to the degree of complexity of the Committee's
implementing regulations.
Discussion of Account Features
^After carefully considering the public's comments and giving
particular attention to the Act's requirement that the new
account be directly equivalent to and competitive with money
market funds, the Committee determined the characteristics of the
new account.
These characteristics are discussed below.
Interest Rate Ceiling
Section 327 of the Act provides that "[n]o limitation on the
maximum rate or rates of interest on deposit accounts shall apply
to the account. . . . "
Based on this clear and explicit legislative
guidance, and additional corroborative legislative history, the
Committee determined to impose no limitation on the maximum rate
of interest that can be paid on deposits in the new account which
meet the minimum balance requirements discussed below.
Notably, despite the clear guidance in the Act and its legislative
history regarding interest rate ceilings, at least one commenter
suggested that the Committee should impose limits on the amount
of interest that can be paid on the new account.
The commenter
noted that a money market fund must pay a yield which reflects
the return on its portfolio minus appropriate fees.
The commenter
suggested that, given this fact, a ceilingless account would be
inconsistent with the Act's requirement that the new account be
"directly equivalent to and competitive with money market mutual
funds."
This commenter suggested that a ceiling should be imposed
whether or not the account was insured.
Whether or not the Committee has discretion to impose an interest
rate ceiling on the new account, it is clear from the language of
the Act and its legislative history that Congress plainly envisioned
that no ceiling would apply to the new account.
The Committee
finds no inconsistency or conflict between the determination not
to impose a ceiling and the requirement of the Act that the account
be directly equivalent to and competitive with money market funds.
Therefore, the Committee's decision to impose no limit on the
rate of interest that can be paid on the new account is clearly
appropriate under, and consistent with, the Act.
8
M i n imum Balance Requirements
Although the Act does not specify a required m i n imum denomination,
the Conference Report (S. Rep. No. 641, 97th Cong., 2d Sess.
(1982)) and other legislative history indicate a Congressional
intent that the minimum not exceed $5,000.
As noted earlier,
the public's comments on the account did not indicate a consensus
on the question of a required initial balance.
However, there
was considerable support for $5,000 ,. $2,500 and no required
minimum balance.
Notably, information available to the Committee
indicates that, although not legally required to do so, 59
percent of money market funds have minimum balance requirements
of $1,000 or less and 85 percent have minimum balance requirements
of $3,000 or less.
The Committee determined to impose an initial balance requirement
on the new account of $2,500.
Depository institutions are free
to establish higher minimums if they wish.
In reaching this
determination, the Committee took into consideration, among
other things, the public comments, the above noted practices of
money market funds and the potential earnings impact on depository
institutions posed by internal shifts in their deposits from
lower yielding accounts to the higher yielding Money Market
Deposit Account.
The Committee believes that a minimum initial
deposit requirement of $2,500 will allow depository institutions
to compete effectively with mon e y market funds without unduly
affecting their costs.
For much the same reasons as those which led to the decision to
set a minimum initial balance requirement, the Committee has
established a minimum balance requirement of $2,500 for funds
maintained in the new account.
As with the minimum initial
balance requirement, depository institutions are free to set
higher balance requirements if they wish.
In considering what
minimum balance requirement is appropriate for the new account,
the Committee considered, among other things, the fact that
money market funds typically permit shareholders to maintain
balances well below their required mini m u m initial balance and
still earn a market rate of interest.
However, the Committee
also considered the fact that two thirds of the commenters,
often citing the need for operational simplicity, favored a
required minimum balance that was the same as any required
m i n imum initial deposit.
There was not a substantial number of
commenters supporting a m i n i m u m balance lower than any initial
deposit requirement.
Given this fact, and its belief that a
$2,500 minimum balance requirement will still allow depository
institutions to compete with money market funds, the Committee
determined that the account will have a required minimum balance
of $2,500.
9
Averaging the Balance
In order to permit flexibility to depository institutions, the
Committee determined to allow each institution to 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 one month.
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, durinq the one week computation
period is equal to or above $2,500.
In order to make the minimum balance requirement effective, the
Committee has determined that a ceiling rate of interest no
higher than the institution's NOW account ceiling rate (currently
5 1/4 percent) will be imposed on accounts which fail to meet
the $2,500 minimum balance requirement.
Institutions may pay a
lower rate if they choose.
A majority of commenters favored
such a penalty rate.
The NOW account ceiling rate will apply
for the entire computation period in which the average balance
in the account is less than $2,500.
For example, an institution
which uses an average balance computed over a seven day period
must pay a depositor a rate not in excess of the NOW account
ceiling rate for the entire seven day period if the depositor's
average daily balance during that seven day period was 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 an ex post basis.
A few commenters expressed concern that the requirement of a
penalty rate of interest might be in violation of the statutory
mandate that the account be ceilingless.
The Committee does
not believe this to be the case.
It notes that Congress left
it within the Committee's discretion to establish an account
with a minimum balance, which could be as high as $5,000.
The
Committee believes that Congress mandated only that no interest
rate ceiling should apply to accounts that meet any such require
ment, if established.
Therefore, the Committee believes that
it has acted within its authority, and has provided additional
flexibility to institutions, by providing for the account to
pay a penalty rate of interest on balances below the $2,500
required balance chosen by the Committee.
Maturity
Section 327 of the Garn-St Germain Act provides that the account
will not be subject to transaction account reserve requirements
"even though no minimum maturity is required."
The creation of
10
this exception to the transaction account reserve requirements
strongly suggests that Congress intended that the Committee
establish the new account without imposing a minimum maturity.
This intent is also indicated by the requirement of section 327
that the account be "directly equivalent to and competitive with
money market mutual funds."
Money market funds generally do not
establish a minimum maturi t y and are not required to do so by law
or regulation.
Finally, that Congress intended the account to
have no minimum maturity is supported by the Senate Report, which
states that the account "should have no minimum maturity."
S.
Rep. No. 536, 97th Cong., 2d Sess. 19 (1982).
The Committee carefully considered the above legislative language
and history regarding Congressional intent on the issue of minimum
maturity.
The Committee determined that the establishment of a
minimum maturity would be inconsistent with Congressional intent
and would not result in an account directly equivalent to and
competitive with money market funds.
Therefore, the Committee
determined to impose no minimum maturity on the account.
The Committee did determine, however, to prevent depository
institutions from effectively offering the account as a long-term
deposit.
The Committee determined to impose a maximum limitation
of one month 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 one month.
Accordingly, 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 . , 90 days).
In establishing these limitations,
the Committee recognized that an institution does have the latitude
to establish a maturity of one month or less on the account.
In establishing the above described limitations, the Committee
noted that approximately three fifths of the commenters did not
favor a limitation on the guarantee of a rate, and over 90 percent
of the commenters preferred no limitation on the maturity of the
account.
However, the Committee also noted that money market
funds are not empowered to guarantee a rate of return on invest
ments. For this reason, and the fact that allowing depository
institutions to guarantee a rate for over one month could
effectively deregulate virtually all deposit accounts now subject,
to interest rate ceilings, the Committee established the above
described limitations.
11
Reservation of Notice
The Committee imposed a requirement that institutions rese r ve
the right to require seven days prior notice of withdrawal s or
transfers from the new account.
The Committee believes th at
this is not inconsistent with the previously discussed
Congressional intent that the account have no minimum matu r i t y .
This is because the Committee did not provide that institu t ions
must require prior notice for transactions or withdrawals.
Rather, the Committee merely provided that institutions mu st
reserve the right to require such prior notice.
The Commi 11 ee
determined that if an institution chooses to exercise its right
to require notice, it must apply that requirement equally to
all depositors that maintain the new account.
In establishing a reservation of notice requirement, the Committee
noted that a majority of respondents to the Committee's request
for comments did not believe that a required reservation of
notice was needed and, therefore, did not favor such a require
ment.
However, under the Investment Company Act of 1940, money
market funds may delay redemptions of shares for up to seven
days.
This is similar to the current regulatory requirement
that depository institutions reserve the right to require notice
of withdrawals from savings deposits and NOW accounts.
Such a
reservation requirement distinguishes the new account from
demand deposit accounts upon which (under current law) interest
may not be paid.
For these reasons, and to give institutions a
degree of flexibility in unusual circumstances, the Committee
established the above described reservation of notice requirement.
Based on experience with savings deposits, it is likely that
such a notice requirement will be exercised only under extreme
circumstances.
Transaction Features
Section 327 of the Act provides that the new account will not
be subject to transaction account reserve requirements "even
though up to three preauthorized or automatic transfers and
three transfers to third parties are permitted monthly."
The
creation of this exception to the Federal Reserve Board's
transaction account reserve requirements strongly suggests that
Congress intended the Committee to establish the account with
at least such transaction features.
Under current industry practice, and under the rules of relevant
regulatory agencies, preauthorized and automatic transfers
include transfers of funds to a third party as well as transfers
of funds to another account of the depositor if such transfers
are effected pursuant to an agreement made in advance or an
12
arrangement to pay a third party or transfer funds to another
account at a predetermined time or on a fixed schedule.
For
example, a transfer made pursuant to an agreement between a
depository institution and its customer that funds would be
transferred from one account to another at a specified interval
(e .g . , the 10th, 20th and 30th of each month) or used to pay
specific or recurrent charges (e .g . , a mortgage or insurance
payment) would be a preauthorized or automatic transfer.
However
the C o m m i t t e e 'has determined that telephone transfers made to
another account of the depositor in the same institution will
not be considered under this regulation as preauthorized or
automatic transfers.
The Act provides no- guidance a
"transfers to third parties."
history clearly indicates that
include checks.
The Committee
account, third party transfers
that could be effected by mean
transfer.
to the meaning of the ph rase
However , the Act* 's legisl a t i ve
the language was intended to
determi ned t h a t , under th e new
can be checks or any tran sf er
of an automatic or preau thor i zed
For the present time, the Committee decided to authorize an
account with transaction features limited to those suggested by
the A c t ’s reference to three preauthorized or automatic transfers
and three third party transfers per month.
Given the previously
discussed definition of those terms, d e pository institutions
must restrict preauthorized or automatic transfers from the new
account to other accounts of the depositor or to third parties
to a maximum of six transfers per month, of which no more than
three can be checks.
However, this regulation imposes no limit
on the number of telephone transfers from the new account to
another account of the same depositor at the same depository
institution.
It is noted, however, that the question of such
unlimited telephone transfers will be reconsidered at the
Committee's next meeting.
Depository institutions are, therefore,
advised that, in the future, unlimited telephone transfers from
the new account to other accounts of the same customer may not
be permitted.
In establishing the monthly numerical limits on permissible
transactions, the Committee recognized that money market funds
do not impose numerical restrictions on transactions.
However,
the Committee believes that it is appropriate to authorize the
new account at this time with the above described limited
transaction features and to consider at its next meeting
whether to offer an account with more extensive third party
payment capabilities.
The Committee notes that institutions
are free to offer the new account with more limited (or no)
transaction features if they so desire.
13
Although the Committee limited the number of checks under the
new account, it imposed no minimum denomination concerning
those checks.
It notes that, although money market funds commonly
impose such requirements, they are not required to do so, but
rather do so as a matter of choice. The Committee determined to
give depository institutions this same flexibility.
A majority
of the responses to the Committee's request for comments on
this issue favored giving institutions this flexibility.
For reasons similar to-those outlined above concerning checks,
the Committee also imposed no minimum denomination requirement
concerning preauthorized or automatic transfers.
As with the
minimum denomination of checks, institutions are free to use
their discretion as to what minimum denomination requirements
(if any) they wish to impose concerning preauthorized or
automatic transfers.
Although, as discussed above, the Committee established limitations
on automatic and preauthorized transfers of funds in the new
account, the Committee imposed no limitations on the size or
frequency of withdrawals from the account, or transfers from
the account to other accounts of the same depositor where such
withdrawals or transfers are effected by mail, telephone, messenger,
automated teller machine or in person.
For purposes of this
regulation, a withdrawal means the receipt by a depositor of
direct payment from a depository institution of funds he has
deposited in that institution.
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.
A
substantial majority of all commenters were opposed to such
restrictions.
A vailability to All Depositors
The Act does not specify which persons or entities are eligible
for the new account.
However, the Senate Report indicates that
the account shall be available to all depository institution
customers.
S. Rep. No. 536, 97th Cong., 2d Sess. 19 (1982).
Other legislative history provides an equally clear indication
that this was the Congressional intent.
See 128 Cong. Rec. H8436
(daily ed. Oct. 1, 1 9 8 2 ) (remarks of Reps. Stanton and St Germain).
Furthermore, money market mutual funds are not restricted as to
the types of entities from whom they may accept funds and the Act
states that the new account "shall be directly equivalent to and
competitive with" such funds.
Given these facts, the Committee
determined that the institutions can make the account available
to all persons and entities.
■ ****” '
14
Compliance Related Provisions
The Committee adopted a number of compliance related provisions
regarding the new account.
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,
A slight majority of commenters on this issue
favored such a prohibition.
Similarly, in order to preserve
the efficacy of the previously described numerical limits on
preauthorized or automatic transfers and checks, the Committee
provided that the rate of interest, or other fees, on an overdraft
credit arrangement on an account to which withdrawals from the
new account can be paid must not be less than those imposed on
overdraft arrangements of customers who do not have deposits in
the new account.
The Committee noted that almost two thirds of
the commenters on this issue did not favor such a provision.
However, the Committee believes that the provision is necessary
in order to discourage account arrangements which would circumvent
the numerical limit on the new account's transactional capacities.
The Committee notes that the provision relates only to fees or
other charges on an account to which withdrawals from the new
account can be paid.
It does not govern the fees that a depository
institution may wish to impose regarding overdrafts on the new
account.
The previously discussed rules adopted by the Committee regarding
the new account contain several requirements expressed in monthly
terms (e .g . , the monthly numerical restrictions on transactions,
the monthly limit on agreements to pay any interest rate, and
the permissible use of an average monthly balance for maintenance
balance purposes.)
To provide institutions with a maximum
degree of flexibility, the Committee provided that, for purposes
of compliance with its rules for the new account which are
expressed in monthly terms, an institution may use either the
calendar month or a statement cycle of at least four weeks, but
not longer than 31 days.
However, it is noted that an institution
must consistently utilize either the calender month or a particular
statement cycle.
Similarly, the Committee decided to give institutions the option
of using either the date written on a check or the date on
which a check is paid for purposes of determining compliance
with the limit of three checks per month.
It is noted, however,
that an institution must c o nsistently adhere to the use of one
date or the other.
For example, an institution which has chosen
to utilize the date of payment method may not count one check
as of the day it was written in order to circumvent the three
checks per month limit.
15
Finally, the Committee adopted a requirement which provides
that institutions must either prevent transactions in excess of
the numerical limitations adopted by the Committee or adopt
procedures to monitor accounts on an ex post basis and .contact
depositors who exceed those limits on more than an occasional
basis.
For depositors who continue to violate the limits on
transactions after being contacted, institutions will be required
to either close the account or take away the account's transfer
and draft capacity.
A large majority of commenters- favored
enforcement through ex post* monitoring. The Committee notes in
this regard that the above described enforcement requirement
establishes only the minimum a depository institution must do
to avoid permitting transactions in excess of those allowed on
the new account.
An institution is free to impose additional
measures, such as a service charge for checks over the three
per month limit.
Effective Date
The Garn-St Germain Act requires that this regulation authorizing
the new account be effective no later than December 14, 1982.
At
its public meeting held November 15, 1982 (29 days prior to December
14), the Committee voted to authorize the account.
Later the
same day, the Committee issued a press release which announced
and described the new account.
Notably, approximately one half of the comment letters received
by the Committee indicated that 30 days would be sufficient lead
time for institutions to implement the account; the other half
felt that more lead time would be required.
Given the requirements
of the Act and the commenters' opinions regarding the account's
effective date, the Committee determined to make this regulation
effective, and thus the account available, on December 14, 1982.
In deciding to make this regulation effective on December 14,
1982, the Committee was aware that the Administrative Procedure
Act (5 U.S.C. § 553(d)) generally requires a regulation to be
published in the Federal Register at least 30 days prior to its
effective date unless the regulation is excepted from this require
ment.
The Committee determined that two exceptions in the
Administrative Procedure Act apply to this regulation.
First,
the Administrative Procedure Act excepts from the 30-day delayed
effectiveness requirement a substantive rule which "relieves a
restriction."
5 U.S.C. § 553(d)(1).
The Committee is of the
opinion that this regulation is such a rule since it will remove
numerous restrictions on depository institutions with respect to
the deposit services they may offer their customers.
The Senate
Report is replete with references to the way interest rate ceilings
and other regulatory limitations have disadvantaged depository
institutions in their ability to compete for consumer savings
with less regulated entities.
By authorizing the new account,
this regulation clearly relieves many of those restrictions.
16
The Administrative Procedure Act also excepts from the 30-day
delayed effectiveness requirement a rule where an agency finds
"for good cause" that the rule should be published with less than
a 30-day delayed effectiveness.
The Committee determined for
good cause that this regulation should be effective on December
14, 1982.
The Committee relied on several factors in making this
determination.
First, the Garn-St Germain Act specifically states
that the regulation is to be effective no later than 60 days
after enactment, i .e . , no later than December 14, 1982.
Second,
that Act's legislative history makes it clear, not only that
the regulation is to be effective no later than December 14,
1982, but that the account is to be available to customers no
later than that date.
Third, the legislative history also indicates
that the new account is to be available no later than that date
so that depository institutions can begin to stem the outflows of
their deposits.
Finally, depository institutions have had advance
notice, including the notice supplied by the Committee's October
19, 1982, request for comments and the Committee's November 15,
1982, press release, that the regulation would be effective no
later than December 14, 1982.
The Committee considered the potential effect on small entities
of its establishment of the new deposit account, as required by
the Regulatory Flexibility Act (5 U.S.C. § 601 e_t s e g . ) . ' In
this regard, the Committee's action, in and of itself, imposes
no new reporting or recordkeeping requirements.
Consistent
with the Committee's statutory mandate to eliminate deposit
interest rate ceilings, its establishment of the new account
enables all depository institutions to compete more effectively
in the marketplace for short-term funds.
Depositors generally
should benefit from the Committee's action since the new instrument
provides them with another investment alternative that pays a
market rate of return.
If low-yielding deposits shift into the
new account, depository institutions may experience increased
costs as a result of this action.
However, their competitive
position vis-a-vis nondepository competitors is enhanced by
their ability to offer a competitive short-term instrument at
market rates.
The new funds attracted by the new instrument
(as well as the funds in existing accounts that might otherwise
have left the institution) can be invested at a positive spread
and may, therefore, at least partially offset the higher costs
associated with the shifting of low-yielding accounts.
Pursuant to its authority under Title II of Pub. L. No. 96-221
(94 Stat. 142; 12 U.S.C. § 3501 et s e g .) 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, and pursuant to
the authority granted by section 327 of the Garn-St Germain
Depository Institutions Act of 1982, Pub. L. No. 97-320 (to be
17
codified at 12 U.S.C. § 3503), the Committee amends Part 1204
(Interest on Deposits) by adding a new § 1204.122, effective
December 14, 1982, to read as follows:
1204.122 Money Market Deposit Account
(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 a^ average
deposit balance (as computed in paragraph (b) 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 ceiling rate for NOW account:s~~(T2~
C.F.R. § 1204.108) for the entire computation period, as described
in paragraph (b) of this section.
(b)
The average balance for this account 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 and paragraphs (c) and
(e) of this section, a "month" shall mean, at a depository
institution's option, either a calendar month or a statement
cycle of at least four weeks but no longer than 31 days.)
(c) A depository institution is not required to establish a
m a turity on this account.
However, it may do so provided that
the maturity is no longer than one month.
Furthermore, 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
or the method of calculation of the interest rate paid upon the
period of time funds remain on deposit in this account, if that
period is longer than one month.
(d)
Depository institutions must reserve the right to require
at least seven days notice prior to withdrawal or transfer of
any funds in this account.
If such a requirement for a notice
period is imposed by a depository institution on one depositor,
it must be applied equally to all other depositors holding this
account at the same institution.
(e)
(1)
Depository institutions are not required to limit the
number of transfers of funds from this account to another account
of the same depositor, or the number of withdrawals (i .e . ,
payments directly to the depositor), when such transfers or
withdrawals are made by mail, telephone, messenger, automated
teller machine or in person.
Depository institutions must
18
restrict all preauthorized (including automatic) transfers of
funds from this account to a maxi m u m of six per month.
Three
of such transfers may be by check, draft or similar device
drawn by the depositor to third parties.
Telephone transfers
to third parties are regarded as preauthorized transfers.
There
is no required minimum de n omination for the transfers allowed
by this section.
(2)
In order to ensure that no more .than the permitted
number of transfers are made, depository institutions must
either:
(i) prevent transfers of funds in this account which are
in excess of the limits established by this paragraph,
or
(ii) adopt procedures to monitor those transfers on an ex
post basis and contact customers who exceed the limits
established by this paragraph on more than an occasional
basis.
For customers who continue to violate those
limits after being contacted by the depository institution,
the institution will be required to either close the
account or take away the account's transfer and draft
capacities.
(3)
Depository institutions, at their option, may use on
a consistent basis either the date on a check or the date it is
paid in applying the limit on checks established by this paragraph.
(4)
The rate of interest or other charges imposed on an
overdraft credit arrangement on an account to which withdrawals
from this account can be paid must be not less than those imposed
on overdrafts for customers who do not maintain this account.
(f)
Depository institutions may offer the account authorized
by this section to any depositor.
(g)
Depository institutions are not required to impose restrictions
on the number of additional deposits (including sweeps from
other accounts) into this account.
(h)
A depository institution is not permitted to lend funds to
a depositor to meet the $2,500 balance requirements of this
account.
By order of the Committee, November
23, 1982.
Gordon Eastburn
Acting Executive Secretary
@FedFRASER