Interest on Deposits

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 329

RIN 3064-AC13

Interest on Deposits

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is proposing

to amend its regulation entitled ``Interest on Deposits.'' Section

18(g) of the Federal Deposit Insurance Act (FDI Act) requires that the

FDIC by regulation prohibit the payment of interest or dividends on

demand deposits in insured nonmember banks and in insured branches of

foreign banks. This regulation implements this prohibition. The

proposed rule provides as an exception to the prohibition, the payment

of interest or other remuneration on any deposit which, if held by a

member bank, would be allowable under 12 U.S.C. 371a and 461, or by

regulation of the Board of Governors of the Federal Reserve System

(FRB). This proposal is in accordance with the FDIC's review of its

regulations under section 303 of the Riegle Community Development and

Regulatory Improvement Act of 1994.

DATES: Written comments must be received by the FDIC on or before

December 15, 1997.

ADDRESSES: Send written comments to Robert E. Feldman, Executive

Secretary, Attention: Comments/OES, Federal Deposit Insurance

Corporation, 550 17th Street, NW., Washington, DC 20429. Comments may

be hand delivered to the guard station at the rear of the 17th Street

Building (located on F Street), on business days between 7:00 a.m. and

5:00 p.m. [Fax number: (202) 898-3838; Internet address:

[email protected]]. Comments may be inspected and photocopied in the

FDIC Public Information Center, Room 100, 801 17th Street, NW.,

Washington, DC 20429, between 9:00 a.m. and 4:30 p.m. on business days.

FOR FURTHER INFORMATION CONTACT: Marc Goldstrom, Counsel, Regulation

and Legislation Section, Legal Division, (202-898-8807); Louise

Kotoshirodo, Review Examiner, Division of Compliance and Consumer

Affairs, (202-942-3599).

SUPPLEMENTARY INFORMATION:

Background

Section 18(g) of the FDI Act provides that the Board of Directors

of the FDIC shall by regulation prohibit the payment of interest or

dividends on demand deposits in insured nonmember banks and in insured

branches of foreign banks. (12 U.S.C. 1828(g)). Accordingly, the FDIC

promulgated regulations prohibiting the payment of interest or

dividends on demand deposits at 12 CFR part 329. Section 11 of the

Banking Act of 1933 (12 U.S.C. 371a) prohibits member banks from paying

interest on demand deposits and is implemented by Regulation Q, (12 CFR

part 217) of the FRB.

Section 18(g) of the FDI Act also provides that the FDIC shall make

such exceptions to this prohibition as are prescribed with respect to

demand deposits in member banks by section 19 of the Federal Reserve

Act, as amended, or by regulation of the FRB (12 U.S.C. 1828(g)).

Generally, member banks, state nonmember banks and insured branches of

foreign banks are subject to the same prohibition and exceptions to

such prohibition, albeit under different statutes and regulations.

From time to time the FRB issues or authorizes a new exception to

the prohibition applicable to member banks, and the FDIC later issues

or authorizes a similar exception affecting state nonmember banks and

insured branches of foreign banks. For example, the FRB recently

amended its interpretation with respect to limitations on premiums

given on demand deposits (62 FR 26736 (May 15, 1997)) and the FDIC

later issued a similar interpretive rule affecting state nonmember

banks and insured branches of foreign banks (62 FR 40731 (July 30,

1997)).

In the periods of time in which the FRB has issued or authorized an

exception to the prohibition, but the FDIC has yet to act, state

nonmember banks and insured branches of foreign banks faced a possible

competitive disadvantage with respect to member banks. In order to

eliminate the potential for any such competitive disadvantage in the

future and in light of the FDIC's statutory mandate to make such

exceptions to this prohibition as are prescribed with respect to demand

deposits in member banks, the FDIC is proposing to create an omnibus

exception to the prohibition on the payment of interest on demand

[[Page 53770]]

deposits. The proposed rule would allow for the payment of interest or

other remuneration on any deposit which, if held by a member bank,

would be allowable under 12 U.S.C. 371a and 461, or by regulation of

the FRB. The effect of this proposal is that state nonmember banks and

insured branches of foreign banks would become subject to the same

exceptions to the prohibition that member banks are subject to,

regardless of whether the FDIC had issued or authorized the specific

exception.

The FDIC is also proposing this rule in response to section 303 of

the Riegle Community Development and Regulatory Improvement Act of 1994

(CDRIA), Pub. L. 103-325, 108 Stat. 2160 (Sept. 23, 1994). This statute

requires that each federal banking agency, consistent with the

principles of safety and soundness, statutory law and policy, and the

public interest, conduct a review of the regulations and written

policies of that agency to, among other things, make uniform all

regulations and guidelines implementing common statutory or supervisory

policies. The FDIC believes that the proposal is in accordance with

section 303 of the CDRIA in that it seeks to make uniform a regulation

implementing a common statutory policy.

Regulatory Flexibility Act

The Board hereby certifies that the proposed rule would not have a

significant economic impact on a substantial number of small entities

within the meaning of the Regulatory Flexibility Act (5 U.S.C. 601 et

seq.). The effect of this proposal is that state nonmember banks and

insured branches of foreign banks would become subject to the same

exceptions to the prohibition that member banks are subject to,

regardless of whether the FDIC had issued or authorized the specific

exception.

Paperwork Reduction Act

The proposed rule would not constitute a ``collection of

information'' within the meaning of section 3502(3) of the Paperwork

Reduction Act of 1995 (44 U.S.C. 3501 et seq.). Consequently, no

material has been submitted to the Office of Management and Budget for

review.

List of Subjects in 12 CFR Part 329

Banks, banking, Interest rates.

For the reasons set forth in the preamble, the Board of Directors

of the FDIC proposes to amend 12 CFR part 329 as set forth below:

PART 329--INTEREST ON DEPOSITS

1. The authority citation for part 329 continues to read as

follows:

Authority: 12 U.S.C. 1819, 1828(g) and 1832(a).

2. Section 329.3 is added to read as follows:

Sec. 329.3 Exception to prohibition on payment of interest.

Section 329.2 shall not apply to the payment of interest or other

remuneration on any deposit which, if held by a member bank, would be

allowable under 12 U.S.C.371a and 461, or by regulation of the Board of

Governors of the Federal Reserve System.

By order of the Board of Directors.

Dated at Washington, DC this 6th day of October, 1997.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 97-27300 Filed 10-15-97; 8:45 am]

BILLING CODE 6714-01-P