F e d e r a l R e s e r v e B a n k OF DALLAS

DALLAS, TEXAS 75222

April 9, 1986 Circular 86-34

TO: The Chief Executive Officer of all member banks and others concerned in the Eleventh District

SUBJECT Final Amendments to Regulation D, Reserve Requirements of Depository Institutions, and , Interest on Deposits

DETAILS

The Board of Governors issued final amendments to Regulations D and Q effective April 1, 1986. The amendments arise from the expiration on March 31, 1986, of the statutory authority to set interest rate ceilings on time and savings deposits and to prescribe rules regarding early withdrawals from time deposits which are currently set out in Regulation Q. The amendments preserve the current treatment of money market deposit accounts (MMDAs) and revise minimum penalties for early withdrawal of certain deposits, and they are set out in Regulation D to preserve the current scheme for reserve requirement purposes.

The Board will be amending the advertising rule in Regulation Q at a later date.

ATTACHMENTS

A Board press release and Federal Register document are attached.

For additional copies of any circular please contact the Public Affairs Department at (214) 651-6289. Banks and others are encouraged to use the following Incoming WATS numbers in contacting this Bank (800) 442^7140 (intrastate) and (800) 527-9200 (interstate). This publication was digitized and made available by the of Dallas' Historical Library ([email protected]) - 2 -

MORE INFORMATION

For further information on Regulation D, please contact Robert G. Feil at (214) 651-6690 or Evelyn E. Thomas at (214) 651-6132. For further information on Regulation Q, please contact this Bank's Legal Department at (214) 651-6228.

Sincerely yours, FEDERALRESERVEpressrelease

For Immediate release March 19, 1986

The Federal Reserve Board today Issued final amendments to its

Regulations D (Reserve Requirements of Depository Institutions) and Q

(Interest on Deposits) that preserve the current treatment of money market

deposit accounts (MMDAs) and revise minimum penalties for early withdrawal

of certain deposits.

In 1980 Congress passed the Depository Institutions Deregulation

and Monetary Control Act which called for the orderly phase-out and ultimate

elimination of Interest rate ceilings on all deposit accounts, except for

demand deposits, under the direction of the Depository Institutions Deregulation

Committee (DIDC). Under present law, the DIDC terminates and all interest rate

ceiling authority expires March 31, 1986, as does the authority to require

early withdrawal penalties under Regulation Q and the explicit mandate to offer

MMDAs.

The final amendments to Regulations D and Q adapt to the expiration

of DIDC authority by continuing to exempt deposits with the existing withdrawal

and transaction features of savings and MMDAs from transaction account reserve

requirements and from the prohibition of interest on demand deposits. That is,

savings deposits and MMDAs will continue to qualify for the zero or 3 percent

(nonpersonal) time deposit reserve requirement if, for savings deposits, no

more than three preauthorized, automatic, or telephone transfers are allowed

each month, and for MMDAs, no more than six transfers per month are authorized,

of which three can be by check, draft or . Holders of both accounts

still will be able to make unlimited withdrawals or inter-account transfers by

mail, messenger, or in person at the depository institution or at an ATM.

(over) -2 -

The amendments also remove the $150,000 limitation on business savings accounts, bringing their treatment into line with MMDAs. If either savings deposits or MMDAs held by businesses are authorized to exceed the transfer limitations described above, they may be considered demand deposits on which interest could not be paid because businesses are not eligible to have NOW or ATS accounts.

Certain early withdrawal penalties are retained in the revised Regulation

D to help maintain distinctions between transaction accounts and time deposits, and between nonpersonal time deposits of different maturities for reserve requirement purposes. Early withdrawal penalties of at least seven days' interest are required on any withdrawal permitted within the first six days after a time deposit is made. This requirement applies to both personal and nonpersonal time deposits. For nonpersonal time deposits with original maturities or notice periods of 18 months or more that allow withdrawal within the first 18 months of the deposit, a one month's interest penalty is required.

The new early withdrawal rules are effective April 1, 1986, for most institutions. Credit unions and other depository institutions not now subject to regulatorily prescribed early withdrawal penalties will have until January 1,

1987, to begin imposing such penalties on time deposits opened, renewed, or added to on or after that date.

Copies of the Board's notices are attached.

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Attachments Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations 9629

FEDERAL RESERVE SYSTEM 12 CFR Part 204 [Reg. D, Docket No. R-0565] Definition of Deposit and Technical Amendments AGENCY: Board of Governors of the Federal Reserve System. a c t io n : Final rule.

su m m a r y : Pursuant to itsauthority under section 19 of the Federal Reserve Aet, as amended, the Board is adopting final rules amending 12 CFR Part 204 (Regulation D—Reserve Requirements of Depository Institutions). Concurrently, the Board is adopting a final rule amending 12 CFR Part 217 (Regulation Q—Interest on Deposits). The amendments are being adopted after consideration of public comments received on proposed amendments to Regulation D (51 FR 27, January 2,1986) and Regulation Q (51 FR 31, January 2, 1986). The amendments are due to the expiration on March 31,1986, of the Depository Institutions Deregulation Committee (“DIDC”) and with it the authority to set regulatory interest rale ceilings on deposits other than demand deposits. In addition, the DIDC’s rules authorizing money market deposit accounts ("MMDAs”) expire on that date along with the provisions in Regulation Q prescribing early withdrawal penalties. The statutory prohibition against the payment of interest on demand deposits remains in effect. Generally, the amendments to Regulation D are intended to preserve the current scheme of reserve requirements for transaction accounls, savings deposits (including MMDAs), and time deposits. The amendments to Regulation D include revised minimum early withdrawal penalties designed to distinguish between certain types of deposits for reserve requirement purposes. The amendments also include minor changes to the definitions in Regulation D and clarification of existing requirements for classifying accounts. At this time, the Board is also adopting other technical amendments to Regulations D and Q. The Board will be amending the advertising rule in its Regulation Q at a later date. EFFECTIVE DATE: April 1, 1986. FOR FURTHER INFORMATION CONTACT: John Harry Jorgenson, Senior Attorney (202/452-3778) or Patrick J. McDivitt, Attorney (202/452-3818), Legal Division, Thomas Simpson, Deputy Associate 9630 Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations

Director (202/452-3546), Division of deposits and clarify the limit on Time Deposits and Early Withdrawals Research and Statistics, or Eamestine telephone transfers from such accounts. Currently, section 19(j) of the Federal Hill or Dorothea Thompson, In so doing, the amendments redefine Reserve Act provides that a depositor Telecommunication Device for the Deaf the terms “transaction account,” may withdraw funds from a time deposit (TDD) (202/452-3544), Board of “savings deposit” and “time deposit” before maturity only under the rules and Governors of the Federal Reserve and, with certain exceptions, preserve regulations of the Board. Under this System, Washington, DC 20551. the current scheme of reserve authority, Regulation Q currently requirements on deposits. The SUPPLEMENTARY INFORMATION: Section prescribes certain minimum penalties 19(b) of the , 12 amendments also make other clarifying for early withdrawals from time U.S.C. 461(b), provides the Board with and technical changes to Regulation D. deposits. Early withdrawal penalties the authority to impose reserve The principal amendments are help to maintain the distinction between requirements on deposits held by discussed in detail below. a “transaction account” and a “time depository institutions, and section 19(a) of that Act, 12 U.S.C. 461(a), gives the Preservation of the MMDA deposit" and to maintain the differences in maturities on time deposits primarily Board the authority to define terms used The current Regulation D incorporates in section 19 and to prevent evasions of to enforce interest rate ceilings. The by reference the regulatory description express statutory authority to prescribe section 19. Pursuant to this authority, the of the MMDA adopted by the Board promulgated Regulation D. In the rules regarding early withdrawals from Depository Institutions Deregulation time deposits expires on March 31,1986 past, Regulation D definitions of deposit Committee (“DIDC”). Because the DIDC categories have been used in the and the Board no longer will require and its rules expire on March 31,1986, such a penalty under that authority. regulation of the payment of interest on Regulation D, as amended, will include deposits under the Board’s Regulation Nevertheless, the Board still believes the descriptive characteristics of the that the early withdrawal of funds from Q—Interest on Deposits (12 CFR Part MMDA for the purposes of the 217), and this practice will continue. time deposits undermines the distinction regulation. Generally, the MMDA between a “transaction account” and a One such definition is the money market continues to be limited to six "time deposit” and between time deposit account (“MMDA”).1 preauthorized, automatic, or telephone deposits of varying maturities for The Gam-St Germain Depository transfers per month. Three of the six monetary policy purposes under Institutions Act of 1982 (Pub. L. 97-320) transfers may be by check payable to Regulation D. directed the DIDC to create the MMDA. third-parties. Consequently, an existing As implemented by the DIDC, the MMDA will continue to be treated as a The Board is amending its definition MMDA permits depositors limited “savings deposit” under the amended of “time deposit” to provide that a time authority to make third party payments rule, provided the applicable transfer deposit with a minimum maturity of from the account. Senate Joint limitations are adhered to. Generally, seven days or more from which Resolution 97-271 (Pub. L. 97-457) also comments favored retention of the withdrawals are permitted within the provided that the MMDA would not be current MMDA treatment. first six days after the date of deposit considered a “transaction account” for The amendments also liberalize the will be a “time deposit” only if it meets purposes of Regulation D, provided that the other criteria for a time deposit and third-party payments were limited. treatment of certain transfers from MMDAs. Under existing rules, loan is subject to a minimum early Consequently, Regulation D excluded withdrawal penalty equal to seven days’ the MMDA from the definitions of payments from an MMDAs. Under existing rules, loan payments from an simple interest on the amount “transaction account” and “demand withdrawn. deposit” even though funds could be MMDA to the institution itself are counted toward the six transfer limit, Under Regulation D, nonpersonal time withdrawn from an MMDA by check or deposits with a maturity of one and one- draft. while such payments made from an half years or more are subject to a zero On March 31,1986, the regulations of ordinary are not counted-toward the three transfer limit percent reserve requirement while the DIDC implementing the MMDA nonpersonal time deposits with a expire along with the regulatory currently applicable to such accounts for preauthorized or telephone transfers. shorter maturity are subject to a three limitations on the payment of interest on percent reserve requirement. If a deposits and the prescribed early Consequently, a depositor may make nonpersonal time deposit has a stated withdrawal penalties.2 unlimited loan repayments from a maturity or notice period of one and In order to take these changes into savings account but only three per account and to make clarifying and month from an MMDA. Several one-half years or more and early technical changes, the Board is comments suggested treating both withdrawals are permitted after six amending its Regulation D. The accounts similarly to reduce monitoring days but within one and one-half years amendments are designed to: (1) and administrative costs. The revised after the date of deposit, it must be Preserve the MMDA, largely in its regulation provides for unlimited loan subject to a minimum penalty equal to current form; (2) establish limited early payments to the institution from an one month’s simple interest on the withdrawal penalties for reserve MMDA as well as from a savings amount withdrawn in order to be requirement purposes; and (3) remove deposit. treated as a "nonpersonal time deposit” the $150,000 limit on business savings Currently, any account from which a with a maturity of one and one-half payment can be made to a third party by years or more for purposes of Regulation D. 1 Similar categories were established under debit card is a “transaction account.” comparable authority of the Federal Deposit The Board’s proposal would have Any deposit failing to meet either the Insurance Corporation and the Federal Home Loan permitted debit card transfers to third definition of“ time deposit” or "savings Bank Board. parties from MMDAs so long as they deposit" will be considered a * Statutory limitations, such as the prohibition against the payment of interest on demand deposits were counted towards the three check “transaction account” and will be and the eligibility requirements for NOW and ATS or draft limitation. The revised subject 4o the transaction account accounts, are not affected by the expiration. Regulation D incorporates this change. reserve requirements. Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations 9631

The proposal had provided that after Additional Early Withdrawal Penalties deposits if the depositor is eligible to hold another type of transaction a partial early withdrawal, a deposit In its proposal, the Board indicated an account, such as a NOW account or an ceased to be a time deposit unless the interest in retaining early withdrawal ATS account, that would permit the remaining balance was placed in a new penalties in order to assist institutions in particular excess transfers.) account. A number of commentators matching the maturities of assets and indicated that it would be burdensome liabilities for purposes of safety and Commentators expressed concern that to establish separate new accounts in soundness of the institutions. A number under the proposal, an excess transfer such cases. Accordingly, the final rule of comments supported this concept. might result in automatic reclassification provides that the remaining balance in a The Board also indicated that it would of the account even though the transfer time deposit after a partial early consult with the federal depository was an isolated occurrence and the withdrawal will continue to be regarded * institution regulatory agencies depository institution could not prevent as a “time deposit” if subsequent early concerning the appropriate structure and the occasional excess transfer at the withdrawals are subject to the seven use of penalties for this purpose. This time it occurred. The final rule day penalty for withdrawals made issue has been raised with the Federal incorporates the procedures for within six days after the last partial Deposit Insurance Corporation, the monitoring accounts on an ex post basis withdrawal. Comptroller of the Currency, and the that are currently specified in Federal Home Loan Bank Board. In § 217.7(g)(5)(ii) of Regulation Q for Several commentators expressed MMDAs. concern over the implementation of the proposed regulations adapting to the expiration of the DIDC, the Federal Under this procedure, institutions early withdrawal penalty provisions in must contact customers who exceed the the definition of “time deposit.” This Home Loan Bank Board also requested comment on the retention of early transfer limitations on more than an issue was of particular concern to the occasional basis. For customers who National Credit Union Administration withdrawal penalties for this purpose. The Board intends to study the continue to violate the transfer which noted that for Federal credit limitations after being contacted, the unions, limitations on early withdrawals economic and legal issues relating to imposing early withdrawal penalties for institution must close the account or were deregulated in 1982. The NCUA take away its transfer and draft requested a transition period to allow safety and soundness purposes in cooperation with the other federal capacities. If an institution continues to modification of credit union forms. depository institution regulatory permit recurring excess transfers from a In general response to these agencies. In the interim, the Board savings deposit or an MMDA or fails to comments, under the final rule, existing continues to believe that such penalties maintain procedures to enforce the time deposits will continue to be time serve a useful purpose in maintaining transfer limitations, the account may be deposits. The new early withdrawal the stability of an institution’s liabilities, determined to authorize such excess penalties must be imposed on accounts and institutions are encouraged to transfers and the institution may be opened on or after April 1,1986. In consider including them in their time required to reclassify the account as a response to the NCUA’s concerns, the deposit contracts. "transaction account.” For example, if final rule-provides a longer the depositor is eligible to maintain a implementation period for institutions Transfers From Savings Deposits NOW account and excess transfers are that currently lack a regulatory Under existing regulations, a made by check, the account may be requirement for such a penalty, as in the depositor may make up to three required to be reclassified as a NOW case of Federal credit unions or preauthorized or telephone transfers per account against which transaction nonfederally insured institutions that month from a savings deposit to another account reserves will be required to be have no such penalty prescribed by account of the depositor or a third held. If the depositor is not eligible to state law or regulation. For these person. MHDAs permit up to six hold a NOW account, the account may institutions, the penalty must be preauthorized, telephone or automatic be required to be reclassified as a included in any account opened, transfers per month. demand deposit on which interest could renewed or to which additional deposits The final rule permits automatic not be paid under Regulation Q. are made on or after January 1,1987.3 transfers to be included within the three Business Savings Deposits transfers per month permitted for Commentators also suggested The proposal removed the separate retention of the current exceptions to the savings deposits, in order to make the transfer limitations more consistent with definition of savings deposit from early withdrawal penalty rules. The Regulation Q and relied instead on the final rule incorporates into Regulation D the transfer limitations applicable to MMDAs. Regulation D definition. This change the exceptions for early withdrawals eliminated the current $150,000 penalties currently specified by Enforcement of Transfer Limitations limitation on business savings deposits, Regulation Q. Under the proposed rule and the final this bringing the treatment of business rule, the definition of “savings deposit” savings deposits in line with the 3 For institutions with an existing stock of deposit includes an ordinary savings account treatment of MMDAs. All comments on contract forms, the Board believes that early the proposal to remove this limitation withdrawal penalties may be implemented with an and an MMDA unless the depositor is addendum attached to the existing form. For authorized to exceed the transfer supported the change. example, the following language could be used to limitations for such accounts. If the This change also limited business implement the seven day penalty: "Addendum to depositor is authorized to exceed the telephone transfers from a savings [time deposit or the institution's name for such deposit to three per month. If a deposit) issued to (name of customer) on (date). transfer limitation, the account would be This deposit has a maturity of (state maturity), if it considered to be a “transaction depository institution authorized a is withdrawn within the six (6) calendar days account” for the purposes of Regulation business depositor to exceed the following the date of deposit, or within six (6) days D reserve requirements. (Such account applicable transfer limitation, however, following any partial withdrawal made prior to the the institution may be required to maturity date, such withdrawal shall be subject to a would not be a “demand deposit” for minimum penalty of seven (7) days' simple interest purposes of the Regulation Q prohibition reclassify the account as a "demand on the amount withdrawn." against payment of interest on demand deposit” because businesses are not 9632 Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1966 / Rules and Regulations

authorized to maintain NOW accounts 4. Hie Board is making technical small entities. In this regard, the Board or ATS accounts. The final rule also amendments to otfier portions of the recognized a potential transition retains this limitation. regulation to remove obsolete terms and problem for credit unions and other entities not now subject to regulations Miscellaneous requirements. These technical amendments include the following requiring early withdrawal penalties. It 1. The proposal treated transfers provisions: acted to alleviate this problem by made by remote (or home) computer or a. Section 204.3(h) of Regulation D delaying the effective date of its other telecommunications access device, provides for a phase-in of the carryover requirements for such penalties for such other than an ATM, as transfers of excesses or deficiencies for institutions until January 1,1987. It is the counting toward the telephone transfer depository institutions that report Board's view that the amendments will limitations. The few comments that reservable liabilities weekly. Because not impose any additional reporting or were received on this issue were the phase-in is now complete, the Board recordkeeping requirements. To a large divided. Hie Board is amending its is simplifying the section and extent, the amendments retain the definitions of “transaction account" and eliminating its obsolete phase-in current reserve maintenance and “savings deposit” (including “MMDA”) schedule. deposit reporting system. Obsolete to clarify that each such transfer should b. Section 204.4 prescribes transitional terms and provisions are being removed be counted toward the monthly adjustments for computing federal from the regulation to simplify it, and limitations because there is no practical reserve requirements. Reserve phase-in several of the clarifying amendments difference between the customer using schedules were established in 1980 for ensure more liberal treatment for data signals from a site remote from the member, former member, and savings deposits and MMDAs. This rule premises of the depository institution to nonmember depository institutions. applies to all depository institutions. It order transfers and using oral Because several of these transitional is not anticipated that the amendments commands over the telephone to order schedules have been completed, and will have a negative effect on the ability transfers. because the statute providing that of small depository institutions to attract 2. A number of comments on the MMDAs are not subject to the phase-in deposits. proposal expressed concern that the expires on March 31,1986, the Board is This rule relieves certain existing wording of the draft regulation seemed revising |204.4. and cross references in regulatory restrictions on depository to indicate that the Board was seeking other sections of the regulation, to institutions, preserves current policies to place limits on withdrawals from remove obsolete provisions and regarding the treatment of these savings deposits and MMDAs at ATMs schedules. deposits under the regulation, and c. Section 204.8(e) provides that the where no such limits currently exist. The replaces statutory and regulatory failure of an international banking Board intended no such change. The provisions expiring March 31,1986. facility to comply with the requirements final rule incorporates language Accordingly, the Board finds good cause of §204.8 may cause it to be subject to currently found in Regulation Q for implementing this rule on April 1, the limitations on the payment of delineating permissible withdrawals 1986, which is within thirty days after interest on time deposits contained in from MMDAs at ATMs in the definition the date of publication. the Board’s Regulation Q. Because these of savings deposits, including the limitations expire on March 31,1986, the List of Subjects in 12 CFR Part 204 definition of MMDAs. Board is deleting the cross reference. 3. Under the existing definitions in Banks, banking; Federal Reserve 5. Finally, nonpersonal MMDA-type System; Foreign banking. Regulation D, the term “transaction deposits held by depository institutions account” includes demand deposits, (other than Hawaiian nonmember Pursuant to its authority under section NOW accounts, and ATS accounts. institutions), will be subject to the 19(a) of the Federal Reserve Act (12 USC Currently, the term "demand deposit" in phase-in schedules for federal reserve 461(a)), the Board is amending Part 204 Regulation D includes any deposit that requirements rather than to full reserve as follows: is not a “time deposit” or a “savings requirements beginning with April 1, deposit.” Currently, NOW accounts and 1986. The Board has determined that for PART 204—[AMENDED] ATS accounts are “savings deposits” weekly reporters full reserves shall and therefore are not “demand 1. The authority citation for 12 CFR continue to be maintained on these Part 204 continues to read: deposits.” Under the revised definitions, deposits until the reserve maintenance the term “transaction account” period for nontransaction accounts Authority: Secs. 19, 25, 25(a) of the Federal continues to include “demand deposits,” beginning April 24,1986, which Reserve Act (12 U.S.C. 461,601, 611); and sec. NOW accounts, and ATS accounts and 7 of the International Banking Act of 1978 (12 corresponds to the computation period U.S.C. 3105), unless otherwise noted. specifically provides that the term commencing March 25,1986. For includes any deposit that is not a “time quarterly reporters, full reserves shall be 2. In S 204.2, the introductory text and deposit” or “savings deposit.” The maintained until die reserve paragraphs (b); (c); (d); (e); (f)(l)(i), (ii), definition of “demand deposit" maintenance period commencing April and (v) are revised; and (f)(3) is added expressly excludes NOW accounts and 17,1986, which corresponds to the to read: ATS accounts. NOW accounts and ATS quarterly computation period beginning § 204.2 Definitions. accounts enjoy a statutory exemption March 18,1986. Hawaiian institutions from the prohibition against the will continue to be governed by the For purposes of this part, the payment of interest on demand deposits Board’s December 13,1985 amendment following definitions apply unless and. under the amendments to otherwise specified: to Regulation D (50 FR 51508; December ***** Regulation Q being adopted 17,1985). concurrently with these amendments, (b)(1) “Demand deposit" means a * the Regulation D definition of demand Regulatory Flexibility Analysis deposit that is payable on demand, or a deposit is used in Regulation Q to define The Regulatory Flexibility Act (5 deposit issued with an original maturity those accounts on which the payment of U.S.C. 601 et aeq.) requires the Board to or required notice period of less than interest is prohibited. consider the Impact of this proposal on seven days, or a deposit representing Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations 9633 funds for which the depository depositor is eligible to hold a NOW partial early withdrawals are permitted institution does not reserve the right to account; or must impose aat&&aaaal early require at least seven days” written (B) From which the depositor is withdrawal penal&es of at least seven notice of an intended withdrawal. authorized to make transfers by days’ simple interest on amounts Demand deposits may be in the form of: preauthorized transfer or telephonic withdrawn witfam six days after each (1) Checking accounts; (including data transmission) agreement, partial withdrawal, ff such additional (ii) Certified, cashier's and officer’s order or instruction to another account early withdrawal penalties are not checks (including checks issued by the or to a third party, provided that the imposed, the account ceases to be a time depository institution in payment of depositor is eligible to hold a NOW deposit. The account may become a dividends); account; savings deposit if it meets the (iii) Traveler’s checks and money (iii) Any deposit or account on which requirements for a saving deposit; orders that are primary obligations of the depository institution has reserved otherwise it becomes a transaction the issuing institution; the right to require at least seven days’ account.2 “Time deposit” includes (iv) Checks or drafts drawn by, or on written notice prior to withdrawal or funds— behalf of, a non-United States office of a transfer of any funds in the account and (A) Payable on a specified date not depository institution on an account from which withdrawals may be made less than seven days after the date of maintained at any of the institution’s automatically through payment to the deposit; depository institution itself or through United States offices; (B) Payable at the expiration of a (v) Letters of credit sold for cash or its transfer of credit to a demand deposit or other account in order to cover checks specified time not less than seven days equivalent; after the date of deposit; (vi) Withheld taxes, withheld or drafts drawn upon the institution or to maintain a specified balance in, or to (C) Payable only upon written notice insurance and other withheld funds; that is actually required to be given by (vii) Time deposits that have matured make periodic transfers to such other account, such as accounts authorized by the depositor not less than seven days or time deposits upon which the prior to withdrawal; contractually required notice of 12 USC 371a (automatic transfer account withdrawal as given and the notice or ATS account), provided that the (D) Held in “club” accounts (such as period has expired and which have not depositor is eligible to hold an ATS “Christmas club” accounts and been renewed (either by action of the account; “vacation club” accounts that are not depositor or automatically under the (iv) Any obligation that is a time maintained as "savings deposits”) that deposit under § 204.2(c)(l)(iv); terms of the deposit agreement); and are deposited under written contracts (v) Checks or drafts drawn by the (viii) An obligation to pay, on demand providing that no withdrawal shall be depository institution on the Federal made until a certain number of periodic or within six days, a check (or other Reserve or on another depository instrument, device, or arrangement for deposits have been made during a institution; or period of not less than three months the transfer of funds) drawn on the (vi) IBF time deposits meeting the depository institution, where the even though some of the deposits may requirements of § 204.8(a)(2). be made within six days from the end of account of the institution’s customer (c)(1) “Time deposit" means: already has been debited. the period; or (i) A deposit that the depositor does (E) Share certificates and certificates (2) The term “demand deposit” also not have a right and is not permitted to means deposits or accounts on which of indebtedness issued by credit unions, make withdrawals from within six days and certificate accounts and notice the depository institution has reserved after the date of deposit unless the the right to require at least seven days’ accounts issued by savings and loan deposit is subject to an early associations; written notice prior to withdrawal or withdrawal penalty of at least seven transfer of any funds in the account and days’ simple interest on amounts (ii) A "savings deposit;" from which the depositor is authorized withdrawn Within the first six days after to make withdrawals or transfers in deposit.1 A time deposit from which contributed to an individual Retirement Account or excess of the withdrawal or transfer a Keogh (H.R. 10) plan established pursuant to 26 limitations specified in § 204.2(d)(2) for 1 Accounts existing on March 31,1986, may U.S.C. 408 or 26 U.S.C. 401 when the individual for such an account and the account is not a satisfy the early withdrawal penalties specified by whose benefit the account is maintained attains age this Part by meeting the Depository Institutions 59 V4 oris disabled (as defined in 28 U.S.C. 72(m)(7)) NOW account, or an ATS account ot Deregulation Committee's early withdrawal or thereafter; other account that meets the criteria penalties-in existence on March 31,1986. Accounts (c) Where the depository institution pays that specified in either § 204.2(b)(3)(ii) or (iii) that otherwise meet the requirements for time portion of a time deposit on which federal deposit below. deposits but that lack such penalties due to a lack of insurance has been lost as the result of the merger a regulatory requirement for such a penalty, as in of two or more federally insured banks in which the (3) “Demand deposit" does not the case of Federally-ohartered credit unions, may depositor previously maintained separate time include: continue to be classified as time deposits; however, deposits, for a period of one year from the date of (i) Any account that is a time deposit the penalty should be included in time deposits the merger; or a savings deposit under this Part; opened, renewed or to which additional deposits (d) Upon the death of any owner of the time (ii) Any deposit or account on which are made on or after January 1,1987. deposit funds; A time deposit, or a portion thereof, may be paid (e) When the owner of the time deposit is the depository institution has reserved before maturity without imposing the early determined to be legally incompetentby a court or the right to require at least seven days’ withdrawal penalties specified by this part: other administrative body of competent jurisdiction written notice prior to withdrawal or (a) Where the time deposit is maintained in an or transfer of any funds in the account and Individual Retirement Account established in (f) Where a time deposit is withdrawn within ten accordance with 28 U.S.C. 408 and is paid within days after a specified maturity date even though th< either— seven days after establishment of the Individual deposit contract provided for automatic renewal at (A) Is subject to check, draft, Retirement Account pursuant to 28.CFR 1.408- the maturity date. negotiable order of withdrawal, share 6(d)(4), or where it is maintained in a Keogh (H.R. 2 A nonpersonal time deposit with a stated draft or similar item, such as an account 10) plan; provided that the depositor forfeits an maturity of one and one-half years or more may be amount at least equal to the simple interest earned treated as having an original maturity of one and authorized by 12 USC 1832(a) (“NOW on theamaunt withdrawn; one-half years or more for reserve requirement Account’') and an MMDA as described (b) Where the depository institution pays all or a purposes only if it is subfect to the minimum penalty in | 204.2(d)(2)(h), provided that the portion of a time deposit representing funds described in S 204.2(f)(3). 9634 Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations

(iii) An “IBF time deposit” meeting the payment to a third party by means of a account) of the depositor at the same requirements of § 204.8(a)(2); and preauthorized or automatic transfer, or institution or to a third party by means (iv) Borrowings, regardless of telephonic (including data transmission) of the preauthorized or automatic maturity, represented by a promissory agreement, order or instruction, transfer (see § 204.2(d)(2)(i)), or note, an acknowledgment of advance, or provided that no such withdrawals may telephonic (including data transmission) similar obligation described in be by check, draft or similar order agreement, order or instruction and no § 204.2(a)(l)(vii) that is issued to, or any (including debit card) drawn by the more than three of the six such transfers bankers’ acceptance (other than the type depositor to third persons. A may be made by check, draft, debit card described in 12 U.S.C. 372) of the "preauthorized transfer” includes any or similar order made by the depositor depository institution held by— arrangement by the depositor institution and payable to third parties. Such an (A) Any office located outside the to pay a third party from the account of account is not a “transaction account” United States of another depository a depository upon written or oral by virtue of an arrangement that permits institution or Edge or agreement instruction (including an order received transfers for the purpose of repaying corporation organized under the laws of through an loans and associated expenses at the the United States; (ACH) or any arrangement by a same depository institution (as (B) Any office located outside the depository institution to pay a third originator or servicer) or that permits United States of a foreign bank; party from the account of the depositor transfers of funds from this account to (C) A foreign national government, or at a predetermined time or on a fixed another account of the same depositor an agency or instrumentality thereof;3 schedule. Such an account is not a at the same institution or permits engaged principally in activities which "transaction account” by virtue of an withdrawals (payments directly to the are ordinarily performed in the United arrangement that permits transfers for depositor) from the account when such States by governmental entities; the purpose of repaying loans and transfers or withdrawals are made by (D) An international entity of which associated expenses at the same mail, messenger, automated teller the United States is a member; or depository institution (as originator or machine or in person or when such (E) Any other foreign, international, or servicer) or that permits transfers of withdrawals are made by telephone (via supranational entity specifically funds from the account to another check mailed to the depositor) designated by the Board.4 account of the same depositor at the regardless of the number of such (2) A time deposit may be represented same institution or permits withdrawals transfers or withdrawals.® by a transferable or nontransferable, or (payments directly to the depositor) (3) A deposit may continue to be a negotiable or nonnegotiable, from the account when such transfers or classified as a savings deposit even if certificate, instrument, passbook, or withdrawals are made by mail, the depository institution exercises its statement, or by book entry or messenger, automated teller machine or right to require notice of withdrawal. otherwise. in person or when such withdrawals are (4) “Savings deposit” does not include (d)(1) "Savings deposit” means a made by telephone (via check mailed to funds deposited to the credit of the deposit or account with respect to which the depositor) regardless of the number depository institution’s own trust the depositor is not required by the of such transfers or withdrawals.5 department where the funds involved deposit contract but may at any time be (ii) A deposit or account, such as an are utilized to cover checks or drafts. required by the depository institution to account commonly known as a "money Such funds are “transaction accounts.” give written notice of an intended market deposit account” ("MMDA”), (e) "Transaction account” means a withdrawal not less than seven days that otherwise meets the requirements before withdrawal is made, and that is deposit or account from which the of § 204.2(d)(1) and from which, under depositor or account holder is permitted not payable on a specified date or at the the terms of the deposit contract or by expiration of a specified time after the to make transfers or withdrawals by practice of the depository institution, the negotiable or transferable instrument, date of deposit. The term “savings depositor is permitted or authorized to deposit’ includes a regular share payment order of withdrawal, telephone make no more than six transfers per transfer, or other similar device for the account at a credit union and a regular calendar month or statement cycle (or account at a savings and loan purpose of making payments or similar period) of at least four weeks to transfers to third persons or others or association. another account (including a transaction (2) The term “savings deposit” also from which the depositor may make means: third party payments at an automated 5 In order to ensure that no more than the teller machine (“ATM”) or a remote (i) A deposit or account that otherwisepermitted number of withdrawals or transfers are meets the requirements of § 204.2(d)(1) made, for an account to come within the definitions service unit, or other electronic device, and from which, under the terms of the in § 204.2(d)(2), a depository institution must either including by debit card, but the term account agreement, or by practice of the (a) prevent withdrawals or transfers of funds in does not include savings deposits or depository institution, the depositor is this account that are in excess of the limits accounts described in § 204.2(d)(2) even established by § 204.2(d)(2)(i) or (ii), or though such accounts permit third party permitted or authorized to make no (b) adopt procedures to monitor those transfers more than three withdrawals per on an ex post basis and contact customers who transfers. “Transaction account” calendar month, or statement cycle (or exceed the limits established by § 204.2(d)(2)(i) or includes: similar period) of at least four weeks, for (ii) on more than an occasional baBis. (1) Demand deposits; the purpose of transferring funds to For customers who continue to violate those limits after being contacted by the depository (2) Deposits or accounts on which the another account of the depositor at the institution, the depository institution must either depository institution has reserved the same institution (including a close the account and place the funds in another right to require at least seven days’ “transaction account”) or for making account that the depositor is eligible to maintain or written notice prior to withdrawal or take away the account's transfer and draft capacities. 3 Other than states, provinces, municipalities, ar An account that authorizes withdrawals or 6 See footnote 5. For accounts described in other regional or local govemmentalunits or transfers in excess of the permitted number in a § 204.2(d)(2)(H), the institution at its option may use agencies or instrumentalities thereof. transaction account regardless of whether the on a consistent basis either the date on the check, *■ The designated entities are specified in 12 CFR authorized number of transactions are actually draft or similar item or the date the item is paid in 217.126. made. applying the limits on such items. Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations 9635 transfer of any funds in the account and service^ or that permits transfers of (E) Any otiber foreign, international, or that are subject to check, draft, funds from this account to another supranational entity specifically negotiable order of withdrawal, share account of the same depositor at the designated by the Board.® draft, or other similar item, except same institution or permits withdrawals ***** accounts described ia § 204.2(d)(2j(ii) (payments directly to the depositor) (3) Any nonpersonal time deposit with (MMDAs), but including accounts from the account when such transfers or a stated maturity or notice period of one authorized by 12 USC 1832(a) (’’NOW withdrawals are made by mail and one-half years or more that permits accounts”). messenger, automated teller machine or any early withdrawal must be subject to (3) Deposits or accounts on which the in person or when such withdrawals are a minimum early withdrawal penalty depository institution has reserved the made by telephone (via check mailed to equal to at least thirty days’ simple right to require at least seven days’ the depositor) regardless of the number interest on the amount withdrawn for written notice prior to withdrawal or of such transfers or withdrawals. any withdrawal that occurs more than transfer of any fund£ in the account and (5) Deposits or accounts maintained in six days but within one and one-half from which withdrawals may be made connection with an arrangement that years after the date of deposit. Any such automatically through payment to the permits the depositor to obtain credit account not subject to this minimum depository institution itself or through directly or indirectly through the early withdrawal penalty will be transfer or credit to a demand deposit or drawing of a negotiable or regarded as a nonpersonal time deposit other account in order to cover checks nonnegotiable check, draft, order or with an original maturity or notice or drafts drawn upon the institution or instruction or other similar device period of from seven days to less than to maintain a specified balance in, or to (including telephone or electronic order one and one-half years from the date of make periodic transfers to such or instruction) on the issuing institution the deposit.® accounts, except accounts described in that can be used for the purpose of * * * * » * § 204.2(d)(2), but including accounts making payments'or transfers to third authorized by 12 U.S.C. 371a (automatic persons or others or to a deposit account §204.2 [Amended] transfer accounts or ATS accounts). of the depositor. 3. Section 204.2 is amended as follows: (4) Deposits or accounts on which the (6) All deposits other than time and (a) By redesignating the first footnote depository institution has reserved the savings deposits. 1 in paragraph (h)(l)(ii)(A) as footnote right to require at least seven days’ (f)(1) “Nonpersonal time deposit” 10. written notice prior to withdrawal or means: (b) By redesignating the second transfer of any funds in the account and (i) A time deposit, including an footnote 1 in paragraph (h)(2)(h) as under the terms of which, or by practice MMDA or any other savings deposit, footnote 11 and revising the footnote to of the depository institution, the representing funds in which any read, “See footnote 10.” depositor is permitted or authorized to beneficial interest is held by a depositor (c) By redesignating footnote 2 in make more than three withdrawals per which is not a natural person; paragraph (t)(l) as footnote 12. month or statement cycle (or similar (ii) A time deposit, including an 4. Section 204.3 is amended by period) of at least four weeks for MMDA or any other savings deposit, revising paragraphs (a)(3)(i) and (h) to purposes of transferring funds to that represents funds deposited to the read: another account of tRe depositor at the credit of a depositor that is not a natural same institution (including a person, other than a deposit to the credit § 204.3 Computation and maintenance. “transaction account”) or for making of a trustee or other fiduciary if the (a) * * * payment to a third party by means of entire beneficial interest in the deposit (3) * * * (i) In determining the reserve preauthorized transfer, or telephonic is held by one or more natural persons; requirements of a depository iristitution, (including data transmission) agreement, ***** the exemption provided for in section order or instruction, except accounts (v) A time deposit represented by a 204.9(a) shall apply in the following described in § 204.2(d)(2). An account promissory note, an acknowledgment of order of priorities: that authorizes more than three such advance, or similar obligation described (A) First, to net transaction accounts withdrawals in a calendar month, or in § 204.2(a)(l)(vii) that is issued to, or that are first authorized by federal law statement cycle (or similar period) of at any bankers’ acceptance (other than the in any state after April 1,1980; least four weeks, is a “transaction type described in 12 U.S.C. 372) of the (B) Second, to other net transaction account” whether or not more than three depository institution held by: accounts: and such transfers are made during such (A) Any office located outside the (C) Third, to nonpersonal time period. A ‘‘preauthorized transfer” United States of another depository deposits (including MMDAs and other includes any arrangement by the institution or Edge or agreement savings deposits) and Eurocurrency depository institution to pay a third corporation organized under the laws of liabilities starting with those with the party from the account of a depositor the United States; highest reserve ratio under § 204.2(a) upon written or oral instruction (B) Any office located outside the and then to succeeding lower reserve (including an order received through an United States of a foreign bank; ratios. automated clearing house (ACH)), or (C) A foreign national government, or ***** any arrangement by a depository an agency or instrumentality thereof,7 (h) Carryover of Excesses or institution to pay a third party from the engaged principally in activities which Deficiencies. Any excess or deficiency account of the depositor at a are ordinarily performed in the United predetermined time or on a fixed States by governmental entities; 8 The designated entities are specified in 12 CFR schedule. Such an account is not a (D) An international entity of which 217.126. “transaction account” by virtue of an the United States is a member; or 9 See Footnote 1 for treatment of accounts arrangement that permits transfers for existing on March 31,1966 and for exceptions to the the purpose of repaying loans and imposition of the early withdrawal penalties 7 Other than states, provinces, municipalities, or imposed by this Part. The penalty required fcy (his associated expenses at the same other regional or local governmental units or § 204.2(f)(3) and that required by § 204.2(c)(1) need depository institution (as originator or agencies or instrumentalities thereof. not be aggregated. 9636 Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations

in a required reserve balance for any specifically designated by the Board; 16 of “deposit” now appear in Regulation maintenance period that does not or D. exceed the greater of two percent of the c. By amending paragraph (e) by This final rule does not address institution’s required reserves (including removing the phrase “and to interest advertising of deposits by member required clearing balances and net of payment limitations that may be banks (§ 217.6 of Regulation Q) which the required clearing balance penalty applicable under Regulation Q (12 CFR the Board also published for comment free band where applicable) or $25,000, Part 217) on its IBF time deposits,”. (51 FR 1379) and which will be adopted shall be carried forward to the next By order of the Board of Governors of the at a later date. maintenance period. Any carryover not Federal Reserve System, March 17,1986. EFFECTIVE DATE: April 1,1986. offset during the next period may not be William W. Wiles, carried forward to subsequent periods. FOR FURTHER INFORMATION CONTACT: ***** Secretary of the Board. John Harry Jorgenson, Senior Attorney [FR Doc. 86-6143 Filed 3-19-86; 8:45 am] (202/452-3778), or Patrick J. McDivitt, §204.4 [Amended] BILLING CODE 6210-01-M Attorney, (202/452-3818), Legal Division, 5. Section 204.4 is amended as follows: or Ernestine Hill or Dorothea Thompson, Telecommunication Device for the Deaf a. By amending the last sentence of 12 CFR Part 217 (TDD) (202/452-3544), Board of paragraph (a) by removing the language Governors of the Federal Reserve after “1980” and replacing it with a [Reg. Q; Docket No. R-0566] System, Washington, DC 20551. period. b. By removing paragraphs (b) and (c). Interest on Deposits; Definition of SUPPLEMENTARY INFORMATION: Section c. By redesignating paragraph (d) as Deposit and Technical Amendments 19(a) of the Federal Reserve Act, 12 paragraph (b) and removing the phrase U.S.C. 461(a), gives the Board the AGENCY: Board of Governors of the authority to issue rules defining terms “or (c), as applicable,”. Federal Reserve System. d. By redesignating paragraph (e) as used in section 19 in order to prevent paragraph (c) and in new paragraph (c) a c t io n : Final rule. evasions of that section. Section 19(i) of that Act (12 U.S.C. 371a) prohibits the (2)(ii) replacing "eight” with SUMMARY: Pursuant to its authority “seventeen”. payment of interest on a demand under section 19 of the Federal Reserve deposit by a member bank, and section e. By redesignating paragraph (f) as Act, as amended, the Board is adopting 19(j) of that Act (12 U.S.C. 371b) gives paragraph (d) and by removing from a final rule amending 12 CFR Part 217 the Board authority to issue rules new paragraph (d)(2) the language”, (Regulation Q—Interest on Deposits). governing the payment and advertising including deposits or accounts issued Concurrently, the Board is amending 12 of interest on deposits.1 Pursuant to this pursuant to 12 CFR 1204.122,”. CFR Part 204 (Regulation D—Reserve authority, the Board promulgated its f. By redesignating paragraph (g) a3 Requirements of Depository current Regulation Q which regulates paragraph (e) and changing the Institutions). The amendments are being the payment of interest on deposits. references in paragraphs (e)(1) and (2) adopted after consideration of public The Board’s authority under section from “(a) through (f)” to “(a) through comment on proposed amendments to 13(j) to issue rules governing the (d)” and the reference in paragraph Regulation Q (51 FR 31) and Regulation payment of interest on deposits, other (e)(2)(iii) from “(g)” to “(e)”. D (51 FR 27). than demand deposits, and the § 204.8 [Amended] The amendments are due to the comparable authority of the Federal expiration on March 31,1986, of the 6. Section 204.8 is amended as follows: Deposit Insurance Corporation and the statutory authority to set interest rate Federal Home Loan Bank Board expire a. revising paragraph (a)(2)(i)(B)(5) to ceilings on time and savings deposits with the expiration of the Depository read: A foreign national government, or and to prescribe rules regarding early Institutions Deregulation Act of 1980 at an agency or instrumentality thereof,13 withdrawals from time deposits. All the end of March 31,1986. engaged principally in activities which regulations of the Board issued under The expiration of the rules of the are ordinarily performed in the United this authority and all regulations of the States by governmental entities; an DIDC and of the authorities transferred Depository Institutions Deregulation to the DIDC at the end of March 31, international entity of which the United Committee (“DIDC”) also expire on that States is a member; or any other foreign 1986, will not affect section 19(i) of the date. Federal Reserve Act which prohibits a international or supranational entity These amendments rely on the specifically designated by the Board;14 member bank from paying interest on a definitions of “deposit” and “demand demand deposit. Nor will these or deposit” in the Board’s Regulation D— b. By revising paragraph (a)(3)(v) to expirations affect the authority of Reserve Requirements of Depository member banks to offer accounts that read: A foreign national government, or Institutions (12 CFR Part 204) for the an agency or instrumentality thereof,15 permit automatic transfers to checking purposes of Regulation Q. The accounts (“ATS accounts”) as engaged principally in activities which amendments eliminate the sections of are ordinarily performed in the United authorized by the last sentence of Regulation Q that govern withdrawals section 19(i) of the Federal Reserve Act States by governmental entities; an from time deposits and savings deposits, international entity of which the United (12 U.S.C. 371a) or to offer accounts set early withdrawal penalties, and subject to negotiable orders of States is a member; Or any other foreign establish account characteristics and international or supranational entity interest rate ceilings. Rules regarding 1 The current advertising rule is codified in early withdrawal penalties for reserve Regulation Q at 12 CFR 217.6—Advertising of 13 Other than states, provinces, municipalities, or requirement purposes (rather than for Interest on Deposits. In a separate rulemaking other regional or local governmental units or enforcement of interest rate limitations) proceeding, the Board requested comment on agencies or instrumentalities thereof. and definitions of the various categories proposed revisions to its rules on member bank 14 The designated entities are specified in 12 CFR advertising of interest on deposits (51 FR 1379). The 217.126. comment period for the separate rulemaking on 19 See footnote 13. 16 See footnote 14. advertising closed on March 6,1986. Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations 9637 withdrawal (“NOW accounts”) as three telephone transfers per month as Authority: 12 U.S.C. 248, 371. 371a, 371b, authorized by section 2(a) of Pub. L. 93- “demand deposit.” 461,1828, and 3105, unless otherwise noted. 100 (12 U.S.C. 1832(a)). The Board’s rules regarding the The amendments being adopted by payment of interest are also set forth in §§ 217.3,217.4,217.5, and 217.7 the Board revise §§ 217.1-217.5 and various Board interpretations and policy [Removed] 217.7 of Regulation Q by removing the statements and in staff opinions and 2. Current §§ 217.3, 217.4, 217.5, and rules relating to penalties for early rulings. These amendments render many 217.7 of this Part are removed. withdrawals from time deposits (section of these interpretations, policy 3. Current § § 217.0 through 217.2 are 217.4) and the interest rate ceilings and statements, and staff opinions redesignated as §§ 217.1, through 217.3 account characteristics for time and unnecessary, and the Board will be savings deposits (primarily § 217.7).2 revising these positions accordingly. and are revised to read: In order to prevent savings deposits Unless a contrary intent is evidenced in § 217.1 Authority, purpose, and scope. from being used to evade the prohibition the revised Regulations D and Q, until against the payment of interest on the technical revisions are promulgated, (a) Authority. This regulation is issued “demand deposits,” the Board in the member banks may continue to rely under the authority of section 19 of the past prescribed rules regarding upon existing interpretations and Federal Reserve Act (12 U.S.C. 371, 371a, withdrawals from savings deposits. The policies concerning the exceptions from 371b, 461), section 7 of the International Board is retaining the substance of these early withdrawal penalties, the use of Banking Act of 1978 (12 U.S.C. 3105), and provisions but has incorporated them premiums, the payment of interest after section 11 of the Federal Reserve Act (12 into Regulation D. Consequently, the maturity of a deposit, and the grace U.S.C. 248), unless otherwise noted. rules governing withdrawals from period for withdrawals without penalty (b) Purpose. This regulation prohibits savings deposits, currently contained in from an automatically renewable time the payment of interest on demand § 217.5, are unnecessary and are being deposit after a rollover or maturity date. deposits by member banks and other rescinded. Further, certain disclosure requirements depository institutions within the scope The revised definition of “demand currently found in the related or revised of this regulation and sets forth deposit” in Regulation D, which is being sections of the current Regulation Q are requirements concerning the incorporated by reference in Regulation retained in a new § 217.4. advertisement of interest on deposits by Q. defines the accounts subject to the Regulatory Flexibility Analysis member banks and these other prohibition against the payment of institutions. interest on demand deposits. Under the The Regulatory Flexibility Act (5 (c) Scope. (1) This regulation applies revised definition, the term “demand U.S.C. 601 et seq.) requires the Board to to state chartered banks that are deposit” excludes NOW accounts and consider the impact of this proposal on members of the Federal Reserve under ATS accounts as well as ordinary small entities. In this regard, it is the section 9 of the Federal Reserve Act (12 Board's view that the amendments will savings deposits and money market U.S.C. 321, et seq.) and to all national not impose any additional reporting or deposit accounts (“MMDAs”) if the banks. The regulation also applies to recordkeeping requirements. The applicable transfer limitations are any Federal branch or agency of a purpose of this rule is to simplify adhered to. If the depositor is authorized foreign bank and to a State uninsured Regulation Q and to remove obsolete to exceed the transfer limitations branch or agency of a foreign bank in applicable to savings deposits and terms and conditions that affect the payment of interest on deposits. The the same manner and to the same extent MMDAs, however, such accounts would as if the branch or agency were a be “transaction accounts” for the rule applies to banks that are members of the Federal Reserve System. It is member bank, except as may be purpose of Regulation D but would not otherwise provided by the Board, if: be “demand deposits” for the interest anticipated that this rule will have little payment prohibition purposes of or no adverse effect on the ability of (1) Its parent foreign bank has total Regulation Q if the depositor is eligible small depository institutions to attract worldwide consolidated bank assets in to hold another type of account, such as deposits. excess of $1 billion; a NOW account or an ATS account, that This rule removes existing regulatory (ii) Its parent foreign bank is would permit the particular excess provisions, the authority for which controlled by a foreign company which transfers. For other depositors, savings expires on March 31,1986 and amends owns or controls foreign banks that in deposits and MMDAs authorized to provisions to preserve current the aggregate have total worldwide exceed the withdrawal or transfer requirements in light of the expiration of consolidated bank assets in excess of $1 limitations would be considered to be other requirements. Consequently, the billion; or demand deposits on which interest Board finds good cause for (iii) Its parent foreign bank is could not be paid. implementing this rule on April 1,1986, controlled by a group of foreign The definition of “savings deposit” is which is within thirty days after the date companies that own or control foreign also deleted from Regulation Q, and an of publication. banks that in the aggregate have total amended definition of that term is List of Subjects in 12 CFR Part 217 worldwide consolidated bank assets in contained in Regulation D. The excess of $1 billion. Regulation D definition also removes the Banks, banking, Federal Reserve System, Interest on deposits. (2) For deposit^ held by a member $150,000 limitation on business savings bank or a foreign bank, this regulation accounts but treats a business telephone Pursuant to its authority under section does not apply to “any deposit that is transfer account authorizing more than 19 of the Federal Reserve Act (12 U.S.C. payable only at an office located outside 461 et seq., 371a and 371b), the Board is of the United States” [i.e., the States of 2 Section 217.4 of this final rule retains the current amending Part 217 as follows: the United States and the District of requirement that a member bank disclose to the Columbia) as defined in § 204.2(t) of the customer the effectany early withdrawal penalty. PART 2 1 7 -[AMENDED] That section also retains the current requirement Board's Regulation D— Reserve that interest cannot be paid after a maturity date 1. The Authority citation for 12 CFR Requirements of Depository Institutions unless the contrar* provides otherwise. Part 217 is revised to read. (12 CFR Part 20.4). 9638 Federal Register / Vol. 51, No. 54 / Thursday, March 20, 1986 / Rules and Regulations

§217.2 Definitions. (b) Payment of interest. On each For purposes of this part, the automatically renewable certificate, following definitions apply unless passbook, or other document otherwise specified; representing a time deposit, the bank (a) "Demand deposit” means any shall have printed or stamped a deposit that is considered to be a conspicuous statement indicating that “demand deposit” under § 204.2(b) of the contract will be renewed the Board’s Regulation D—-Reserve automatically upon maturity and Requirements of Depository Institutions indicating the terms of such renewal. (12 CFR Part 204). By order of the Board of Governors of the (b) “Deposit” means any liability of a Federal Reserve System, March 17,1986. member bank that is considered to be a William W. Wiles, “deposit” under § 204.2(a) of the Board’s Secretary of the Board. Regulation D—ReserveRequirements of (FR Doc. 86-6142 Filed 3-19-86; 8:45 am] Depository Institutions (12 CFR Part 204). BILLING CODE 6210-01-M (c) “Foreign bank” means any bank that is considered to be a “foreign bank” under § 204.2(o) of the Board’s Regulation D—Reserve Requirements of Depository Institutions (12 CFR Part 204). (d) “Interest" means any payment to or for the account of any depositor as compensation for the use of funds constituting a deposit. A member bank’s absorption of expenses incident to providing a normal banking function or its forbearance from charging a fee in connection with such a service is not considered a payment of interest. § 217.3 Interest on demand deposits. No member bank of the Federal Reserve System shall, directly or indirectly, by any device whatsoever, pay any interest on any demand deposit.1 4. A new § 217.4 is added as follows: § 217.4 Miscellaneous. (a) Early withdrawal penalty. At the time a depositor enters into a time deposit contract with a member bank, the bank shall provide a written statement of the effect of any early withdrawal penalty which shall (1) state clearly that the customer has contracted to keep the funds on deposit for the stated maturity, and (2) describe fully and clearly how such penalty provisions apply to time deposits in such bank, in the event the bank, notwithstanding the contract provisions, permits payment before maturity. Such statement shall be expressly called to the attention of the customer.

1 A member bank may continue to pay interest on a time deposit for not more than ten calendar days; (1) Where the member bank has provided in the time deposit contract that, if the deposit or any portion thereof is withdrawn not jnore than ten calendar days after a maturity date (one business day for “IBF time deposits” a* defined in S 2 0 4 .B(aH2 ) cff Regulation D), interest will continue to be paid for such period; Oir (2) for a period between a maturity date and the date of renewal of the-deposit, provided that such certificate is renewed within ten calendar days after maturity.