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Inactive Financial Institution Letters


Prohibition Against Payment of Interest on Demand Deposits

FIL-18-98
February 23, 1998

 

TO: CHIEF EXECUTIVE OFFICER AND COMPLIANCE OFFICER
SUBJECT: FDIC Issues Final Rule Prohibiting Payment of Interest on Demand Deposits (Part 329 of FDIC's Rules and Regulations)

The Federal Deposit Insurance Corporation (FDIC) has issued the attached final rule that amends its "Interest on Deposits" regulation. The rule will take effect on April 1, 1998.

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 (Federal Reserve Board). 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 final rule, insured nonmember banks and insured branches of foreign banks automatically become subject to the same exceptions to the prohibition to which member banks are subject by the Federal Reserve Board, regardless of whether the FDIC had issued or authorized the specific exception. The FDIC issued the final rule because the FDIC is required to make the same exceptions to the prohibition that are prescribed for demand deposits in member banks.

For more information about the 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: Federal Register, Vo. 63, No. 33, pp. 8341-8342

Distribution: FDIC-Supervised Banks (Commercial and Savings)

Last Updated 07/17/1999 communications@fdic.gov