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7500 - FRB Regulations
{{6-30-97 p.7656.31}}
PART 217PROHIBITION AGAINST THE PAYMENT OF INTEREST ON
DEMAND DEPOSITS (REGULATION Q)
REGULATIONS
Sec. 217.1
Authority, purpose, and scope.
217.2
Definitions.
217.3
Interest on demand deposits.
INTERPRETATIONS
217.101
Premiums on deposits.
AUTHORITY: 12 U.S.C. 248, 371a, 461, 505, 1818, and 3105.
REGULATIONS
SOURCE: The provisions of this Part 217 appear at 51 FR 9637, March
20, 1986, unless otherwise noted.
§ 217.1 Authority, purpose, and scope.
(a) Authority. This part is issued under the authority
of section 19 of the Federal Reserve Act
(12 U.S.C. 371a,
461, 505), section 7 of the
International Banking Act of 1978 (12
U.S.C. 3105), section 11 of the Federal Reserve Act
(12 U.S.C. 248), and section 8 of
the Federal Deposit Insurance Act (12
U.S.C. 1818), unless otherwise noted.
(b) Purpose. This part prohibits the payment of interest
on demand deposits by member banks and other depository institutions
within the scope of this part.
(c) Scope. (1) This regulation applies to state
chartered banks that are members of the Federal Reserve under section 9
of the Federal Reserve Act (12 U.S.C. 321, et seq.) and to
all national banks. The regulation also applies to any federal branch
or agency of a foreign bank and to a state uninsured branch or agency
of a foreign bank in the same manner and to the same extent as if the
branch or agency were a member bank, except as may be otherwise
provided by the Board, if:
(i) Its parent foreign bank has total worldwide consolidated bank
assets in excess of $1 billion;
(ii) Its parent foreign bank is controlled by a foreign company
which owns or controls foreign banks that in the aggregate have total
worldwide consolidated bank assets in excess of $1 billion; or
(iii) Its parent foreign bank is controlled by a group of foreign
companies that own or control foreign banks that in the aggregate have
total worldwide consolidated bank assets in excess of $1 billion.
(2) For deposits held by a member bank or a foreign bank, this
regulation does not apply to "any deposit that is payable only at an
office located outside of the United States" (i.e., the
States of the United States and the District of Columbia) as defined in
§ 204.2(t) of the Board's
Regulation D--Reserve Requirements of Depository Institutions (12 CFR
204).
[Codified to 12 C.F.R. § 217.1]
[Section 217.1 amended at 57 Fed. Reg. 43336, September 21,
1992]
§ 217.2 Definitions.
For purposes of this part, the following definitions apply unless
otherwise specified;
(a) Demand deposit means any deposit that is considered
to be a demand deposit under
§ 204.2(b) of the Board's
Regulation D--Reserve Requirements of Depository Institutions (12 CFR
part 204).
(b) Deposit means any liability of a member bank that is
considered to be a deposit under § 204.2(a) of the Board's
Regulation D--Reserve Requirements of Depository Institutions (12 CFR
part 204).
{{6-30-97 p.7656.32}}
(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.
[Codified to 12 C.F.R.
§ 217.2]
§ 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
[Codified to 12 C.F.R. § 217.3]
INTERPRETATIONS
§ 217.101 Premiums on deposits.
(a) Section 19(i) of the Federal Reserve Act and
§ 217.3 of Regulation Q
prohibits a member bank from paying interest on a demand deposit.
Premiums, whether in the form of merchandise, credit, or cash, given by
a member bank to a depositor will be regarded as an advertising or
promotional expense rather than a payment of interest if:
(1) The premium is given to a depositor only at the time of the
opening of a new account or an addition to an existing account;
(2) No more than two premiums per account are given within a
12-month period; and
(3) The value of the premium or, in the case, of articles of
merchandise, the total cost (including taxes, shipping, warehousing,
packaging, and handling costs) does not exceed $10 for deposits of less
than $5,000 or $20 for deposits of $5,000 or more.
The costs of premiums may not be averaged. The member bank should
retain sufficient supporting documentation showing that the total cost
of a premium, including shipping, warehousing, packaging, and handling
costs, does not exceed the applicable $10/$20 limitations and that no
portion of the total cost of any premium has been attributed to
development, advertising, promotional, or other expenses. A member bank
is not permitted directly or indirectly to solicit or promote deposits
from customers on the basis that the funds will be divided into more
than one account by the institution for the purpose of providing more
than two premiums per deposit within a 12-month period.
(b) Notwithstanding paragraph (a) of this section, any premium that
is not, directly or indirectly, related to or dependent on the balance
in a demand deposit account and the duration of the account balance
shall not be considered the payment of interest on a demand deposit
account and shall not be subject to the limitations in paragraph (a) of
this section.
[Codified to 12 C.F.R. § 217.101]
[Section 217.101 (formerly 217.147) redesignated as § 217.302 and
amended at 52 Fed. Reg. 47698, December 16, 1987; redesignated as
§ 217.101 at 57 Fed. Reg. 43336, September 21, 1992; amended at 62
Fed. Reg. 26737, May 15, 1997]
[The page following this is 7657.]
1A 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 more than ten calendar days after a
maturity date (one business day for "IBF time deposits" as
defined in § 204.8(a)(2) of
Regulation D), interest will continue to be paid for such period; or
(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. Go Back to Text
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