Sec. 204.134 Linked time deposits and transaction
accounts.
(a) Authority. Under section 19(a) of the Federal Reserve Act (12 U.S.C.
461(a)), the Board is authorized to define the terms used in section 19,
and to prescribe regulations to implement and prevent evasions of the requirements
of that section. Section 19(b)(2) establishes general reserve requirements
on transaction accounts and nonpersonal time deposits. Under section 19(b)(1)(F),
the Board also is authorized to determine, by regulation or order, that
an account or deposit is a transaction account if such account is used
directly or indirectly for the purpose of making payments to third persons
or others. This interpretation is adopted under these authorities.
(b) Linked time deposits and transaction accounts. Some depository
institutions are offering or proposing to offer account arrangements under
which a group of participating depositors maintain transaction accounts
and time deposits with a depository institution in an arrangement under
which each depositor may draw checks up to the aggregate amount held by
that depositor in these accounts. Under this account arrangement, at the
end of the day funds over a specified balance in each depositor's transaction
account are swept from the transaction account into a commingled time deposit.
A separate time deposit is opened on each business day with the balance
of deposits received that day, as well as the proceeds of any time deposit
that has matured that day that are not used to pay checks or withdrawals
from the transaction accounts. The time deposits, which generally have
maturities of seven days, are staggered so that one or more time deposits
mature each business day. Funds are apportioned among the various time
deposits in a manner calculated to minimize the possibility that the funds
available on any given day would be insufficient to pay all items presented.
(1) The time deposits involved in such an arrangement may be held directly
by the depositor or indirectly through a trust or other arrangement. The
individual depositor's interest in time deposits may be identifiable, with
an agreement by the depositors that balances held in the arrangement may
be used to pay checks drawn by other depositors participating in the arrangement,
or the depositor may have an undivided interest in a series of time deposits.
(2) Each day funds from the maturing time deposits are available to
pay checks or other charges to the depositor's transaction account. The
depository institution's decision concerning whether to pay checks drawn
on an individual depositor's transaction account is based on the aggregate
amount of funds that the depositor has invested in the arrangement, including
any amount that may be invested in unmatured time deposits. Only if checks
drawn by all participants in the arrangement exceed the total balance of
funds available that day (i.e. funds from the time deposit that has matured
that day as well as any deposits made to participating accounts during
the day) is a time deposit withdrawn prior to maturity so as to incur an
early withdrawal penalty. The arrangement may be marketed as providing
the customer unlimited access to its funds with a high rate of interest.
(c) Determination. In these arrangements, the aggregate deposit balances
of all participants generally vary by a comparatively small amount, allowing
the time deposits maturing on any day safely to cover any charges to the
depositors' transaction accounts and avoiding any early withdrawal penalties.
Thus, this arrangement substitutes time deposit balances for transaction
accounts balances with no practical restrictions on the depositors' access
to their funds, and serves no business purpose other than to allow the
payment of higher interest through the avoidance of reserve requirements.
As the time deposits may be used to provide funds indirectly for the purposes
of making payments or transfers to third persons, the Board has determined
that the time deposits should be considered to be transaction accounts
for the purposes of Regulation D.
BankersOnline is a free service made possible by the generous support of our advertisers and sponsors. Advertisers and sponsors are not responsible for site content. Please help us keep BankersOnline FREE to all banking professionals. Support our advertisers and sponsors by clicking through to learn more about their products and services.
Print Friendly!
Email This Article!
Discuss NOW!
