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Inactive Financial Institution Letters 

Prohibition Against Payment of Interest on Demand Deposits

FIL-110-97
October 21, 1997

 

TO: CHIEF EXECUTIVE OFFICER AND COMPLIANCE OFFICER
SUBJECT: FDIC Proposes Amending Rule on Prohibition Against Paying Interest on Demand Deposits (Part 329 of FDIC's Rules and Regulations)

The FDIC Board of Directors is seeking comment on the attached proposal to amend its rule governing the prohibition against paying interest on demand deposits. Comments are due by December 15, 1997.

Generally, member banks, nonmember banks and insured branches of foreign banks are subject to the same prohibition and exceptions to the prohibition against paying interest on demand deposits, although prescribed under different statutes and regulations. The Federal Deposit Insurance Act (FDI Act) requires that the FDIC prohibit the payment of interest or dividends on demand deposits in insured nonmember banks and insured branches of foreign banks. 12 CFR part 329 implements this prohibition. Member banks are subject to the prohibition under the Banking Act of 1933 and Regulation Q (12 CFR part 217) of the Board of Governors of the Federal Reserve System (FRB). The FDI Act also requires the FDIC to make the same exceptions to this prohibition that are prescribed by the Federal Reserve Board concerning demand deposits in member banks.

Under the proposed rule, insured nonmember banks and insured branches of foreign banks would automatically become subject to the same exceptions to the prohibition to which member banks are subject to by the Federal Reserve Board, regardless of whether the FDIC had issued or authorized the specific exception.

The FDIC has issued the attached proposal because the FDIC is required to make the same exceptions to the prohibition that are prescribed for demand deposits in member banks. In addition, the proposed rule would make changes transparent for state nonmember banks and insured branches of foreign banks.

For more information about the proposed rule, please contact Marc J. Goldstrom, Counsel in the FDIC's Legal Division, at (202) 898- 8807 or Louise Kotoshirodo, Review Examiner in the FDIC's Division of Compliance and Consumer Affairs, at (202) 942-3599.


Carmen J. Sullivan
Director

Attachment: Oct. 16 Federal Register, pp 53769-53770, available from the FDIC's FR web site at /lawsregs

Distribution: FDIC-Supervised Banks (Commercial and Savings)

NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information center, 801 17th Street, N.W., Room 100, Washington, D.C. 20434 (800-276-6003 or (703) 562-2200). Electronic versions are available at : /banknews

Last Updated 07/16/1999 communications@fdic.gov