Full text of Roundup : May 1982
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X DALLAS Federal Reserve Bank of Dallas May 1982 DIDC Creates New Deposit Instruments Financial institutions are now able to offer a new short-term deposit in strument tied to market interest rates. In its March 22 meeting, the Depository Institutions Deregulation Committee (DIDC) authorized three-month cer tificates of deposit with interest rate ceilings tied to the 91-day Treasury bill rate, effective May 1. The DIDC also established a new category of ceilingless time deposits for banks and thrift institutions with a minimum time to maturity of 31/a years as the first step in its plan for further deregulation of interest rate ceilings (see inside article for a summary of p re v io u s ly -a u th o riz e d d e p o s it instruments). The new three-month CDs feature a $7500 minimum investment and a 91-day maturity. Compounding of in terest is not allowed for the new instru ment, and the m inim um early withdrawal penalty is loss of earned in terest. Unlike the six-month CDs previously authorized, the new cer tificates include a differential between the interest rates banks and thrifts may pay. Thrifts are allowed to pay a rate equal to the current week’s auc tion average of 91-day T-bills, while banks may pay up to 25 basis points less than the T-bill rate. This differential was established for a one-year period only and will be eliminated on May 1, 1983. During the interim, if the 91-day T-bill rate falls to or below 9% for four consecutive weeks, the differential will disappear until the rate rises above 9% again. Deregulation Plan For Time Deposit interest Rate Ceilings Effective dates Deposit maturities subject to interest rate ceilings May 1, 1982 - March 31, 1983 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ **, April 1, 1983 - March 31, 1984 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ April 1, 1984 - March 31, 1985 ■■■■■■■ April 1, 1985 - March 30, 1986 ■■■ March 31, 1986 ■ Time to maturity (years) 0 The DIDC’s plan for the deregulation of time deposit interest rate ceilings is summarized in the graph accompany ing this article. The plan calls for reducing the minimum time to maturity for the deposit category exempt from interest rate ceilings by one year every year until 1986, when the minimum would be reduced to the minimum maturity for all time deposits in effect on that date. This minimum is currently 14 days. In addition, the maturity range of the small saver certificate will be ad justed every year to complement the deregulation plan. The new category of ceilingless time deposits has no specified minimum in vestment but requires a denomination 1 2 3 4 of $500 be offered by institutions. These deposits feature optional negotiability and an early withdrawal penalty of six month’s interest. Addi tions to the account are permitted dur ing the first year at the option of the issuing institution. INSIDE • Penalty Suspension • Market Rate CDs • Economic Conference Governor Gramley Speaks at El Paso Meeting Federal Reserve Board Governor Lyle E. Gramley recently spoke to the El Paso Branch joint board meeting regarding m onetary policy, the economy and inflation. Gramley told the audience at the El Paso Civic Center “ that we have much to gain by sticking with our present course of ac tion, by staying with policies of monetary restraint. And, we have much to lose indeed by turning back to the old ways of doing things.” Before the group, made up mostly of members of the El Paso financial com munity, Gramley speculated on the course of inflation, expecting it to come down. As inflation continues to moderate, he said, “ it’s going to help to bring interest rates down and to set the stage for economic recovery.” “ We feel at the Federal Reserve that we cannot turn back. We feel the threshold of a major breakthrough in interest rates has been made. Inflation has fallen down more so than I and most others have expected. We never thought it possible. We have achieved Transfers and Settlements Now Subject to New Prices The wire transfer and net settlement services of the Dallas Fed were subject to new prices effective April 29. Wire transfer involves sending funds be tween the Federal Reserve accounts of financial institutions, while net settle ment is a book-entry service used to account for check clearings which have taken place outside the Federal Reserve System. The fee schedule for the wire transfer service involves one structural change over that of last year. The charge for a basic transfer is now split between the originator and the receiver of the transfer, reflecting the benefit to both parties of the service. Previously, the originator bore the cost of each transfer. The new transfer prices are 65 cents to both the originator and the receiver of each wire transfer. In 1981, the originator was charged 80 cents per transfer. In addition, a $3.50 surcharge is imposed to each originator of a wire transfer offline from the Fed’s com munications network. This surcharge was $2.70 originally. A surcharge of $2.25, up from $1.80, is charged for telephone advice of an incoming transfer when requested by an offline institution. The new net settlement prices are $1.30 for each settlement entry, up from 80 cents last year. There is an ad ditional charge of $5.00 for an offline origination of a settlement entry, up from $2.70. The surcharge for telephone advice of a settlement entry is $2.25, up from $1.80. The new prices are the same at each Fed office nationwide and generally reflect increased System costs in pro viding the services. Pricing for wire transfer and net settlement was orig inally implemented in January, 1981. substantial progress over inflation by sticking to our course of action and we see no reason to accept less.” Tornados Evoke Lift of Penalty The Federal Reserve Board of Governors recently granted a temporary suspension of the Regulation Q penalty for early withdrawal of time deposits. This action was taken in response to the tornados that hit Lamar County, Texas. The Board’s ac tion permits a member bank, wherever located, to pay a time deposit before maturity without imposing the penalty. However, the depositor must provide a signed statement fully describing the property or other financial loss as a result of the storms. The suspension has been made retroactive to deposits withdrawn on or after April 8, 1982 and will remain in effect un til 12:00 midnight October 8, 1982. Four CDs Feature Market Interest Rates The recently-authorized three-month certificates of deposit and the new ceilingless time deposit category (see front page article) are measures representing part of an overall deregulation plan being implemented by the D e pository In s titu tio n s Deregulation Committee (DIDC). The DIDC was established to supervise the phaseout and ultimate elimination of interest rate ceilings on deposit ac counts as required by the Monetary Control Act of 1980. In doing so, the committee has the authority to create account categories which are not sub ject to interest rate ceilings or to create new deposit instruments with ceilings set at market interest rates. In addition to the new 3Vi-year or longer deposit category which does not have an interest rate ceiling, there currently exist four time deposit in struments which have ceilings tied to market interest rates. These are the new three-month (91-day) CDs, the sixmonth (182-day) money market CDs, the 2 Vi to less than 3 Vi-year small saver CDs, and the one-year all savers CDs. The major features currently in ef fect for each of these instruments are summarized in the table accompany ing this article. Each of the instruments has an in terest rate ceiling tied directly to a market interest rate or yield calcula tion. The exception is the ceiling for the six-month CD, which is calculated using a four-week moving average if this average is greater than the current week’s T-bill rate. The moving average is the average of the previous four auc tion rates for 182-day T-bills, including the current week’s rate. A differential between the interest rates banks and thrift institutions may pay currently exists for two of the in struments, the three-month CDs and the small saver CDs. For each of these certificates, the bank rate is 25 basis points below the thrift rate. The all savers CD is unique in that it includes tax exempt provisions and may only be issued through December 31, 1982. Because of this, the CD is no longer renewable upon maturity. The yield of the all savers CD must be 70% of the current rate for 52-week T-bills. This does not represent an upper ceil ing as do the other interest rate calculations. In addition to these four in struments, the DIDC establishes in terest rate ceilings for all other classifications of deposits as well. These include NOW accounts, savings accounts, regular time deposits, government deposits, IRA or Keogh ac count deposits and deposits over $100,000. All interest rate ceilings for member banks are outlined by the Federal Reserve’s Regulation Q. The Dallas Fed operates a 24-hour telephone recorded message service which provides the current week’s in terest rate ceilings. Weekly rate changes are announced on Mondays after 6 p.m. The telephone numbers used to access the recorded message are listed below. Telephone Numbers for Interest Rate Recorded Message (214) (214) (800) (800) 2Vi to less than 3 Vi-year Small Saver Certificates 3-month Money Market Certificates 6-month Money Market Certificates Ceiling tied to 91-day T-bill rate 182-day T-bill rate How determined Banks: rate minus .25 Thrifts: rate Every week Rate plus .25 or 4-week average plus .25 Every week 2Vi-year yield on Treasury securities Banks: yield minus .25 Thrifts: yield Every two weeks Monday after 6 p.m. Tuesday following $7500 Monday after 6 p.m. Tuesday following $10,000 Monday after 6 p.m. Tuesday following None Loss of earned interest No Loss of three month’s interest No Loss of six month’s interest Yes Yes Yes Yes No Yes No How often changed When announced Effective date Minimum investment Early withdrawal penalty Compounding allowed Automatically renewable Negotiability allowed 651-6177 263-1093 442-7390 527-9208 Dallas Metro Texas National 1-year All Savers Certificates 52-week T-bill rate 70% of rate Approximately every four weeks Thursday after 6 p.m. Sunday following None, but a required $500 denomination Loss of three month’s interest Yes, if rate adjusted to equivalent yield No No Dallas Fed Hosts Economic Conference In mid-April, the Dallas Reserve Bank worked in cooperation with the Center for Economic Education at North Texas State University to host an educational conference for teachers entitled “ Money and the Economy in the Eighties” . Approx imately forty teachers representing the Dallas, Arlington, Denton, Irving, Lewisville, Plano and Richardson In dependent School Districts as well as Weatherford Junior College were in attendance. The program for the all-day con ference included such topics as “ Fundamentals of the Market Economy” and “ Economic In stabilities and Strategies for Sur vival” . Among the guest speakers were economists James Hoehn and Pat Lawler from the Bank’ s Research Department. Conference participants learn to play the game “ You’re the Banker”. FEDERAL RESERVE BANK OF DALLAS