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N E W S RELEASE
PR-18

FOR IMMEDIATE RELEASE

(^SO=TSJ

Statement by
FRANK WILLE
Chairman, Federal Deposit Insurance Corporation
before the
Subcommittee on Financial In stitu tio n s
Committee on Banking, Housing and Urban A ffa ir s
United States Senate
March 20, 1973

The views o f the Federal Deposit Insurance Corporation
with respect to S. 1008, 93d Congress, a b i l l "To extend
certain laws re la tin g to the payment o f in te re s t on time
and savings deposits and to make clea r that Federal bank­
ing statutes do not proh ib it depository in stitu tio n s from
o ffe r in g negotiable order o f withdrawal services in
connection with certain in terest-b earin g d ep osits."

FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth St. N.W., Washington, D. C. 20429



•

202-389-4221

Mr. Chairman, I appreciate the opportunity you have afforded me
to present the views o f the Federal Deposit Insurance Corporation with
respect to S. 1008, 93d Congress, a b i l l "To extend certain laws re la tin g
to the payment o f in te rest on time and savings deposits and to make clea r
that Federal banking statutes do not proh ib it depository in stitu tio n s
from o ffe r in g n egotiable order o f withdrawal services in connection with
certain in terest-b earin g d ep osits."
Section 1 o f the b i l l would extend u n til May 31, 1974 the statutory
authority presently vested in the Board o f Governors o f the Federal
Reserve System, the Board o f D irectors o f the Federal Deposit Insurance
Corporation, and the Federal Home Loan Bank Board to regulate in a fle x ib le
manner the rates o f in te re s t or dividends payable by insured banks
on time and savings deposits and by members o f the Federal Home Loan
Bank System (oth er than those the deposits o f which are insured by
the Federal Deposit Insurance Corporation) on deposits, shares, or
withdrawable accounts.

I t would also extend fo r the same period o f

time the authority o f the Federal Deposit Insurance Corporation and
o f the Federal Home Loan Bank Board to subject 'certain noninsured banks
and in s titu tio n s to in te r e s t- and dividend-rate controls comparable
to those applicable to insured banks and in s titu tio n s .
Sections 2 — 5 o f the b i l l would amend e x is tin g statutes which
re la te to the payment o f in te re s t on deposits to make i t clea r that they
do not p roh ib it such depository in stitu tio n s as commercial and mutual




-

2

savings banks, savings and loan a sso cia tion s, and c re d it unions from
allow ing the owner o f a deposit or account on which in te re s t is paid
to make withdrawals by negotiable Instrument fo r the purpose o f
making tran sfers to th ird p a rties or otherwise.
F le x ib le authority fo r regu latin g the rates o f in te re s t or
dividends that may be paid by insured banks on time and savings
deposits and by certain members o f the Federal Home Loan Bank System —
most o f them insured savings and loan associations — on deposits,
shares, or withdrawable accounts was f i r s t conferred upon the three
regulatory agencies in September o f 1966 fo r a one-year period.

On

f iv e d iffe r e n t occasions, however, the authority has been extended
fo r varying and consecutive periods o f time so that i t now expires,
unless fu rth er extended, on May 31, 1973.

The events which led to the

i n i t i a l enactment o f le g is la tio n conferring the au th ority, the developments
which in dicated a need fo r repeated extensions o f that au th ority, and the
Corporation’ s p o sition regarding the i n i t i a l granting and a l l subsequent
extensions o f that authority are documented in previous correspondence
and statements f i l e d with the f u l l Committee.

For that reason, except

to say that the Corporation supports another temporary extension o f it s
present in te re s t-r a te control au th ority, I sh a ll not recount what already
is a matter o f public record.

I would lik e , however, to d ire c t the

Subcommittee’ s a tten tio n , instead, to a more recent innovation in banking -




- 3 -

the negotiable order o f withdrawal (o r so -ca lled "NOW” ) account — which
has prompted the introduction o f le g is la tio n which, on the one hand,
would congressionally sanction the innovation (as sections 2 - 5 o f
S. 1008 would do) or, on the other hand, proh ibit i t altogeth er.
On July 28, 1970, the Consumers Savings Bank o f Worcester, Massachusetts
(form erly the Worcester Five Cents Savings Bank), asked the Massachusetts
Commissioner o f Banks fo r permission to o ffe r it s customers the righ t
to withdraw funds from th e ir savings accounts by executing negotiable
withdrawal orders.

This request was denied on September 28, 1970.

Consumers

Savings Bank thereupon f i l e d a b i l l fo r declaratory r e l i e f with the Massa­
chusetts Supreme Ju dicial Court seeking to have the Commissioner’ s denial
reversed.

On May 2, 1972, the Massachusetts Supreme Ju dicial Court

held that Consumers Savings Bank could le g a lly permit it s customers
to withdraw funds from th e ir savings accounts by executing negotiable
withdrawal orders.1/

The court was carefu l to point out that it s ruling

merely went to the method o f withdrawal and not to the character o f
the accounts in question.

Although i t found that the proposed form

o f withdrawal order possessed a l l the a ttribu tes o f n e g o tia b ility required
by Massachusetts law, the court concluded that there was nothing in
the Massachusetts statutes or the bylaws o f the bank which would prevent

1/ Consumers Savings Bank v. Commissioner o f Banks, 282 N.E.2d 416
(Mass. 1972).




- 4 -

the bank’ s customers from using this type o f instrument to withdraw
funds from th e ir savings accounts.
As o f February 28, 1973, 56 out o f 167 mutual savings banks in
Massachusetts were o ffe r in g NOW accounts to th e ir customers.

Of the

56 banks o ffe r in g such accounts, only seven are insured by the FDIC.
The remaining 49 banks are insured by the Mutual Savings Central Fund,
I n c . , a State-run insurance corporation ..2/

While the mutual savings

banks in Massachusetts which currently o ffe r NOW accounts comprise
only one-third o f the to ta l number o f mutual savings banks in that State,
th e ir to ta l deposits account fo r about 60 percent o f the t o ta l deposits
in a l l such mutual savings banks.
In Massachusetts, mutual savings banks account fo r a la rg e r share
o f t o ta l bank deposits and, p a rtic u la rly , o f t o t a l time and savings
deposits, than do mutual savings banks in most other States.

As o f

June 30, 1972, mutual savings bank deposits were approximately 54 percent
o f the combined to t a l o f commercial and mutual savings bank deposits
in Massachusetts.

Mutual savings banks in the State had about 77 percent

o f t o t a l time and savings deposits and about 83 percent o f these deposits
in accounts o f less than $100,000.

2J

The Mutual Savings Central Fund also insures excess deposits in the
seven banks insured by the FDIC.




- 5 -

As o f February 28, 1973, i t is estimated that there were approximately
37,200 in dividu al NOW accounts in Massachusetts mutual savings banks
with an average balance o f s lig h t ly more than $1,900.

This represents

an approximate t o ta l o f $71.5 m illio n in NOW accounts which, in turn,
represents about three-fourths o f one percent o f the to ta l savings deposits
in a l l Massachusetts mutual savings banks ($9,571 m illio n as o f December 31,
1972).3/
NOW accounts are also being o ffe re d by mutual savings banks in
New Hampshire.

As o f March 2, 1973, 11 of the 30 mutual savings banks

in New Hampshire were o ffe r in g NOW accounts to th e ir customers.
Mutual savings banks in New Hampshire also account fo r a substantial
share o f t o ta l bank deposits, p a rtic u la rly time and savings deposits.
As o f June 30, 1972, New Hampshire mutual savings bank deposits accounted
fo r approximately 52 percent o f the combined to t a l o f commercial and
mutual savings bank deposits in that S tate, w hile th e ir time and savings
deposits were about 66 percent o f to ta l time and savings deposits.
As o f March 2, 1973, there were ju st under 2,900 individu al NOW
accounts in New Hampshire mutual savings banks with an average balance
o f about $550.

This represents a t o t a l of approximately $1.5 m illio n

3/ Although NOW account deposits s t i l l represent a very small percentage
o f t o t a l savings deposits in a l l Massachusetts mutual savings banks, they
have increased at a substantial ra te. There was an approximate to ta l o f
only $11 m illio n in NOW accounts on September 30, 1972. By December 31,
this t o t a l had increased to s lig h t ly less than $45 m illio n , and stood at
approximately $71.5 m illio n on February 28, 1973.




-

6

-

which is approximately one-seventh o f one percent o f the t o ta l savings
deposits in a l l New Hampshire mutual savings banks ($1,019 m illio n
as o f June 30, 1972).
Individu al NOW accounts in New Hampshire mutual savings banks
are sm aller and appear to be su bstan tially more a c tiv e on the average
than those in Massachusetts mutual savings banks.

Mutual savings banks

in Massachusetts report that an average o f only f iv e negotiable withdrawal
orders were drawn on each account each month during the la s t three
months o f 1972.

In contrast, the la rg est mutual savings bank in New

Hampshire o ffe r in g NOW accounts reported an average o f 15 negotiable
withdrawal orders per account each month.4/

This d ifferen ce appears

to be based on the fa c t that the New Hampshire mutual savings banks
o ffe r in g NOW accounts pay in te re s t on such accounts at the rate o f
only three or four percent (as opposed to a maximum rate o f fiv e percent
fo r regular savings accounts) but do not impose a service charge fo r
items drawn on them, whereas the Massachusetts mutual savings banks
o ffe r in g NOW accounts pay in te re s t at the rate o f 5.25 percent and
were imposing a service charge of 15 cents fo r each withdrawal order
on December 31, 1972.5/

¡¡J

On January 31, 1973, this bank had 1,750 NOW áccounts out o f a to ta l of
ju st under 2,300 NOW accounts fo r the en tire S tate, and to ta l deposits in
NOW accounts o f $900,000 out o f the State to t a l o f $1,150,000. I t s accounts
thus represented v ir tu a lly the en tire NOW account market in New Hampshire
at the end o f January 1973. We are currently endeavoring to obtain
comparable figu res fo r NOW account a c t iv it y in other New Hampshire banks.
5/ Massachusetts commercial banks have generally elim inated service
charges fo r checks drawn on demand deposits.




- 7 -

I t has been said that the a b ilit y to o ffe r NOW accounts gives
mutual savings banks in Massachusetts and New Hampshire a competitive
advantage over commercial banks and savings and loan associations in
the same market.

While we have data in d ica tin g that savings deposits

in Massachusetts mutual savings banks that o ffe r NOW accounts have
increased more rapidly than those in Massachusetts mutual savings banks
without NOW accounts, p a rtic u la rly in the Boston area where savings
deposits in mutual savings banks without NOW accounts actu ally declined
in the la s t fiv e months o f 1972, we have no data in dicatin g a s ig n ific a n t
com petitive impact v is - a - v is commercial banks and savings and loan
associations.

Should the data we are c o lle c tin g indicate a s ig n ific a n t

change in com petitive impact in Massachusetts in the future with respect
to commercial banks and savings and loan association s, we w i l l promptly
inform you.

We are presently tryin g to obtain comparable data fo r

New Hampshire.
Section 18(g) of the Federal Deposit Insurance Act (12 U.S.C.
§ 1828(g)) requires that the Board o f D irectors o f the FDIC "p roh ib it
[by regu lation ] the payment o f in te re s t or dividends on demand deposits
in insured nonmember banks and fo r such purpose . . • define the term
’ demand dep osits’ [subject to those exceptions prescribed by statute
or by regu lation o f the Board o f Governors o f the Federal Reserve System].
The Board o f D irectors has adopted regulations barring the payment




-

8

-

o f in te re s t on demand deposits (12 C.F.R. § 329.2),

I t has also adopted

regulations defin in g a "demand deposit" as any deposit which, is not a
"time deposit" or a "savings deposit" (12 C.F.R. § 3 2 9 .1 (a )).

A "savings

deposit" is defined, in p art, as any deposit with respect to which an
insured nonmember bank may require 30 days’ w ritten n otice p rio r to
withdrawal (12 C.F.R. § 329.1 ( e ) ( i i ) ) .

The Federal Reserve has adopted

a sim ila r d e fin itio n fo r savings deposits in it s member banks (12 C.F.R.
§ 2 1 7 .1 (e )(2 )).
NOW accounts would be c la s s ifie d as savings deposits under present
FDIC regulations because the bank may require 30 days’ w ritten n otice
p rio r to withdrawal.
m annpr

Although our regulations fu rth er r e s t r ic t the

in which funds may be withdrawn from savings accounts, and effectively

preclude the use o f negotiable orders o f withdrawal, these re s tric tio n s
currently apply only to commercial banks and not to insured nonmember
mutual savings banks.
Placing a l l in s titu tio n s on an equal fo o tin g with respect to NOW
accounts remains an elu sive goal under e x is tin g law in part because
the vast m ajority o f mutual savings banks in Massachusetts are not
insured by the FDIC.

As o f February 28, 1973, there were only eight

mutual savings banks in Massachusetts insured by. the FDIC but 159 mutual
savings banks insured ex clu sively by the Mutual Savings Central Fund.
As I pointed out e a r lie r , 49 o f these State-insured savings banks are




- 9 -

presently o ffe r in g NOW accounts to th e ir customers.

The FDIC, as you

know, has no authority at the present time to lim it — or proh ibit —
the payment o f in te re s t or dividends on NOW accounts o ffe re d by mutual
savings banks in Massachusetts which are not insured by the FDIC.

This

is due to the tenth sentence of section 18(g) o f the Federal Deposit
Insurance Act which provid es:
"The authority conferred by this subsection [which
includes the authority to proh ibit the payment o f
in te re s t or dividends on demand deposits and to
lim it the rate of in te re s t paid on savings deposits]
sh a ll also apply to noninsured banks in any State
i f (1) the to ta l amount o f time and savings deposits
held in a l l such banks in the State, plus the to ta l
amount o f deposits, shares, and withdrawable accounts
held in a l l bu ildin g and loan, savings and loan, and
homestead associations (inclu ding cooperative banks)
in the State which are not members o f a Federal home
loan bank, is more than 20 per centum o f the to ta l
amount o f such deposits, shares, and withdrawable
accounts held in a l l banks, and bu ilding and loan,
savings and loan, and homestead associations (in ­
cluding cooperative banks) in the State, and (2)
there does not e x is t under the laws o f such State a
bank supervisory agency with authority comparable
to that conferred bv this subsection, including
s p e c ific a lly the authority to regulate the rates
o f in te re s t and dividends paid bv such noninsured
banks on time and savings deposits, or i f such
agency ex ists i t has not issued regulations in the
exercise of that a u th ority." (Emphasis added.)
Deposits held in State-insured mutual savings banks in Massachusetts
meet the test established by clause (1) of the passage ju st quoted
and, i f that clause stood alone, such deposits would be subject to
regulation as to dividends and in te re s t by the FDIC.




However, under

-

10

-

Massachusetts law the Commissioner o f Banks has authority to regulate
the rates o f in te re s t and dividends paid by State—insured mutual savings
banks (Annotated Laws o f Massachusetts, c. 167, § 18B) and the Commissioner
has issued regulations in the exercise o f that authority.

Therefore,

clause (2) bars the FDIC from using it s authority to regulate NOW accounts
in mutual savings banks in Massachusetts which are not insured by the
FDIC.

With rate control divided as i t is between the FDIC and the

Massachusetts Commissioner, uniformity in treatment between competing
in stitu tio n s becomes impossible unless ( i ) the two agencies agree on
the d e s ir a b ility o f the same course o f action, and ( i i )

the same rules

apply in neighboring States where fin a n cia l In stitu tio n s are subject
to deposit competition from mutual savings banks in Massachusetts.
The Massachusetts Commissioner i s , o f course, under no o b liga tio n to
consider the in te rs ta te ram ifications o f a p a rticu la r set o f ru les,
and the rates applicable to mutual savings banks in Massachusetts are
in fa c t d iffe r e n t today than those applicable elsewhere in the country.
The use o f NOW accounts by mutual savings banks in Massachusetts
and New Hampshire illu s tr a te s one o f the problems facing the Federal
banking agencies in th e ir attempts to administer in te re s t rate controls.
Congress could conceivably decide that the best way to deal with NOW
accounts would be to c la s s ify them, by statu te, as demand deposits
and bar the payment o f in te re s t thereon.




However, this would get

-

at only part o f the problem.

11

-

There are other means o f avoiding the

p roh ib ition against paying in te re s t on demand deposits.

For example,

commercial banks can permit th e ir customers to draw checks on a more
or less overd ra ft basis up,to the amounts in th e ir savings accounts.
The o verd raft would be treated as an in te r e s t-fr e e loan so long as the
depositor repays the loan w ithin a stipu lated period o f time.

Repayment

o f the loan may not be made autom atically or through any prearranged
procedure from the savings account, but o f course normal withdrawals
from the savings account could in fa c t be used to repay the loan.
This arrangement has the same advantages as a NOW account, y e t i t
avoids the proh ib ition against paying in te re s t on demand deposits under
any rea d ily conceivable statutory d e fin itio n o f the term

demand deposit.

Innovative minds could undoubtedly devise other variants which would
accomplish the same ends and ye t stay clea r o f statutory proh ibition s.
I f a statutory d e fin itio n o f p re c is e ly what constitutes a demand
deposit were avoided and i f section 18(g) were amended so as to delete
the aforementioned clause (2) , the FDIC would then have the authority —
a fte r consulting with the Board o f Governors o f the Federal Reserve
System and the Federal Home Loan Bank Board — to regulate generally
the payment o f in te re s t or dividends by State-insured mutual savings
banks in Massachusetts, and to regulate s p e c ific a lly NOW accounts In




-

those banks.6/
1,

12

-

This would give the FDIC a number o f options;

The FDIC could take no action whatever.

In that event mutual

savings banks could continue to o ffe r NOW accounts to th e ir customers
in those States lik e Massachusetts and New Hampshire where such accounts
are le g a lly perm itted.

However, commercial banks would not be allowed

to o f f e r NOW accounts to th e ir customers because FDIC and Federal Reserve
regulations currently bar the tra n sfer o f funds in commercial bank
savings accounts to th ird p arties by check or other order.
2.

The FDIC could proh ib it mutual savings banks in States other

than Massachusetts and New Hampshire from o ffe r in g NOW accounts.

This

would have the e ff e c t o f fre e z in g the current s itu a tio n , subject only
to the spread o f NOW accounts to other mutual savings banks in Massachusetts
and New Hampshire.

6J I f section 18(g) were amended by d ele tin g clause (2 ) , the sentence
immediately fo llow in g clause (2) should also be deleted. This sentence
reads:
"Such authority sh a ll only be exercised by the Board
o f D irectors with respect to such noninsured banks
p rio r to July 31, 1970, to lim it the rates o f in te re s t
or dividends which such banks may pay on time and
savings deposits to maximum rates not lower than 5 1/2
per centum per annum."
The above sentence was added in order to prevent the FDIC from reducing
to less than 5 1/2% the maximum in te re s t rate which might be paid on
regular savings accounts (passbook accounts) by State-insured mutual
savings banks in Massachusetts p rio r to July 31, 1970. However, the
sentence is confusing and might be construed in such a way as to impede
future e ffo r ts to regulate these banks. By it s terms, the sentence
is no longer e ff e c t iv e .




- 13 -

3.

The FDIC could define NOW accounts as a form o f demand deposit.

This would not only prevent mutual savings banks from paying in terest
on such accounts but would preclude th e ir use altogeth er in States
such as Massachusetts which do not authorize mutual savings banks to
accept demand deposits.
4.

The FDIC could permit mutual savings banks to continue to o ffe r

NOW accounts to th e ir customers but lim it the in te rest payable on such
accounts to a rate lower than the maximum perm issible rate fo r regular
savings accounts, or even set a rate o f zero percent.
5.

The FDIC could bar the use o f NOW accounts but permit mutual

savings banks to o ffe r some sort o f lim ited third-party payment system
in th e ir place.

This might take the form o f a nonnegotiable, nontransferable

withdrawal order — sim ilar to that authorized fo r use by Federal savings
'

V

and loan associations under current regulations o f the Federal Home
Loan Bank Board — which could be used only to make certain types o f
payments such as mortgage payments or payments on u t i l i t y b i l l s .
6.

F in a lly , the FDIC could take jo in t action with the Federal

Reserve to permit member and insured nonmember commercial banks as
w e ll as mutual savings banks to o ffe r NOW accounts, subject possibly
to a lower maximum in te rest rate than that established fo r regular
savings accounts, or to the type o f r e s tr ic tio n described in (5) above.
However, such jo in t action would introduce a new d isp arity between




- 14 commercial and mutual savings banks on the one hand and Federal savings
and loan associations on the other, since savings accounts in Federal
savings and loan associations may not be transferred or withdrawn by
negotiable or tran sferable order or au th orization .JJ

In order to avoid

such a d is p a rity , the FDIC and the Federal Reserve would have to subject
NOW accounts to the type o f r e s tr ic tio n described in option (5 ), or the
statutory r e s tr ic tio n on tra n sferrin g funds in savings accounts in
Federal savings and loan associations would have to be removed.
In any event, section 18(g) o f the Federal Deposit Insurance Act
requires that our Board o f D irectors consult with the Board o f Governors
o f the Federal Reserve System and the Federal Home Loan Bank Board before
prescribing any rules which would lim it the rate o f in te re s t paid on
NOW accounts by insured nonmember banks.

I b elie v e that each o f the

options which I mentioned should be thoroughly explored by a l l three
agencies before any p a rticu la r course o f action is decided upon.

We

would no doubt have to consider what the probable e ff e c t o f any particular
course o f action would be on the present structure o f the banking system
and the com petitive im plications fo r commercial banks and savings and
loan associations as w e ll as savings banks.

Also, we would take cognizance

o f any expressions o f opinion as to preferab le courses o f action which
might be voiced by Congress in it s deliberation s on proposed le g is la tio n
extending the rate control authority o f the three Federal agencies
(cu rren tly due to expire June 1, 1973) or in it s deliberation s on proposed
le g is la tio n to implement some or a l l o f the recommendations o f the
P resid en tia l Commission on Financial Structure and Regulation.

_7/ Section 5(b) of the Home Owners’ Loan Act o f 1933, as amended (12
U.S.C. § 1464(b)(1 )(1 9 7 0 )).

# # . # # # #
Attachment



FEDERAL DEPOSIT INSURANCE CORPORATION,

O F F I C E

OF

T H E

Washington, O.C. 2 0 4 2 9

C H A I R M A N

March 20, 1973

Honorable Fernand J. St Germain
Chairman
Subcommittee on Bank Supervision and Insurance
Committee on Banking and Currency
House o f Representatives
Washington, D. C. 20515
Dear Mr. Chairman:
In my statement before your Subcommittee with respect to H.R. 4070,
I outlined s ix possible options.!/ which the FDIC might exercise i f section
18(g) o f the Federal Deposit Insurance Act were amended as suggested
therein. At the March 15 hearing before your Subcommittee, you requested
o f Mr. Barnett that I in dicate which o f the options the FDIC was presently
proposing to exercise i f the proposed statutory change were e ffe c te d
by the Congress.
There are a number o f d i f f ic u lt ie s in attempting to state at this time
how we might exercise our regulatory powers over NOW accounts, as expanded
by the proposed le g is la tio n . F ir s t, the magnitude o f the use o f NOW
accounts, including th e ir p o ten tia l spread to other States, has not
developed to a point where any v a lid conclusions can be reached with
respect to th e ir com petitive impact on commercial banks and savings
and loan associations. Second, our course o f action would undoubtedly
be influenced by the Adm inistration’ s recommendations and resu lting
proposed le g is la tio n on the broader questions of in te re s t-ra te controls
generally and the expansion o f t h r i f t in s titu tio n powers and ob liga tion s.
Third, h is t o r ic a lly , the Board of Governors o f the Federal Reserve System
has taken the leading ro le in c la s s ify in g and establish in g in te re s trate c e ilin g s on bank deposits because of it s prime re sp o n sib ility
in the f i e l d o f monetary p o lic y , and we would be reluctant to indicate
a s p e c ific course o f action fo r the FDIC without f i r s t consulting with
the Board o f Governors. Last, as indicated on pages 14 and 15 o f my
statement, we a n ticip ate receivin g some guidance from the Congress i t s e l f
in connection with it s enactment o f the proposed le g is la t iv e changes
now before i t .

1/

Pages 12 through 14.




Honorable Fernand J. St Germain

2

March 20, 1973

Having in mind the above fa c to rs , I can nonetheless in dicate my personal
fe e lin g s on how the FDIC might proceed i f the amendment to section 18(g)
of the Federal Deposit Insurance Act proposed by section 3 o f H.R. 4070
were enacted.2J In the f i r s t place, I would not be in clin ed to propose
an outright ban on the o ffe r in g o f NOW-type accounts by mutual savings
banks unless compelled to do so by the language o f the b i l l enacted
or by the c le a rly expressed expectations o f the Congress or o f the
committees o f both Houses having ju ris d ic tio n over the subject matter
o f the proposed le g is la tio n . I b e lie v e that NOW-type accounts are of
b e n e fit to bank customers and that they have no in tr in s ic d eficien cies
which render them undesirable from e ith e r a public or a supervisory
standpoint. On the other hand, i t strik es me as both inequitable and,
in the longer term, an evasion o f re s p o n s ib ility to is o la te the use
o f NOW-type accounts to one or a few ju ris d ic tio n s . Thus, options 2
(p ro h ib itin g mutual savings banks in States other than Massachusetts
and New Hampshire from o ffe r in g NOW accounts) and 3 (d efin in g NOW accounts
as a form o f demand deposit) are not those which I personally would
choose to exercise.
Instead, I would recommend that a l l three Federal agencies with ratecontrol powers work toward substantial equ ality among commercial banks,
mutual savings banks and savings and loan associations in the o fferin g
o f NOW-type accounts. Since only option 6, and the variants discussed
therein, contemplates action which would include appropriate changes
in the regulations presently applicable to insured commercial banks
and to insured savings and loan associations, i t is that option or
some varian t o f i t that I personally would be urging upon the regulatory
agencies in our inter-agency discussions. The end resu lt o f such discussions
could, o f course, include the establishment o f a maximum rate o f in terest
below that perm issible on a tra d itio n a l savings account, the establishment
o f a lim ited purpose, nonnegotiable, nontransferable third-party payment
order, or both, but the important point is that commercial banks, mutual
savings banks and savings and loan associations would a l l be authorized
to o ffe r the same type service on a su bstan tially equal basis.
In short, I am personally convinced that the payment o f in te rest to
depositors on accounts against which third-party orders may be drawn
is almost in e v ita b le and in the public in te re s t, keeping in mind at
a l l times, however, the necessity fo r f a i r treatment among competing
commercial and t h r i f t in s titu tio n s . There is no inherent virtu e in a

2/ Some steps would require amendment to our present regulations.
w i l l not attempt to distinguish these.




I

Honorable Fernand J. St Germain

3 -

March 20, 1973

r ig id separation between tra d itio n a l checking and savings accounts in
the banking system. Even the lim ited experience with NOW accounts in
Massachusetts and New Hampshire suggests^./ that, depending upon variants
such as ra te o f in te rest paid and check charges, such accounts have
been used more lik e savings accounts in the former State and more lik e
checking accounts in the la t t e r .
I hope that this statement o f my personal views w i l l a ssist your Sub­
committee during it s d elib era tion s, in mark-up session, with respect
to H.R. 4070.
S incerely,

Frank W ille
Chairman

.3/

See pages 6 and 7 o f my statement.