Evening star., 1934-05-19
FEDERAL RESERVE
DEFINES SAVINGS
Board Discusses Issue Now
Puzz|ing Bankers and
Large Depositors.
BY EDWARD C. STONE.

BY EDWARD c. STONE.
In reply to hosts of inquiries re-
garding the meaning of the word
thrift" as used in the definition OF
savings deposits in section of the
Federal Reserve Boards regulation @,
the board has issued one of the most
important statements in many weeks,
for guidance in classifying deposits.
The Reserve Board believes that the
question whether deposits may be con-
sidered funds accumulated for bona
fide thrift purposes so as to constitute
savings deposits within the meaning
OF the regulation is one upon which
no general rule can be prescribed, and
each case must necessarily be deter
mined upon the basis Of its particular
facts.
Practical Interpretation to be
placed upon the phrase funds accu-
mulated for bona fide thrift purposes"
has caused many discussions among
members of the American Bankers
Association, the District Bankers
Association and in banking circles
everywhere. Bank depositors have
also been greatly puzzled. For that
reason the Reserve Board makes this
explanation:
Three Glasses of Deposits.
at will be observed that regulation
@ relates to three classes OF deposits:
Deposits payable on demand, time
deposits and savings deposits. The
payment of interest on deposits pay
able on demand, directly or indirectly
by any device whatsoever, is pro-
hibited. Interest may be paid in
accordance with the regulation on
time deposits, but no time deposit
may be paid before its maturity.
Interest may be paid in accordance
with the regulation on savings de-
posts and savings deposits may, un-
der certain conditions, be paid with
out requiring notice Of withdrawal.
The primary purpose of the require
ment that savings deposits consist of
funds accumulated for bona flde
thrift purposes is to prevent the pay
ment of interest on funds which
should properly be classified as de-
posts payable on demand and the
payment before maturity Of funds
which should properly be classified as
time deposits.
Accordingly. an important consid-
Grafton in undertaking to determine
what are funds accumulated for bona
fide thrift purposes is to guard against
the use of savings accounts as means
of evading the prohibition against
the payment of interest on deposits
payable on demand or of the prohibit
ton upon the payment of time de-
posit before its maturity. and in any
case in which a member bank is
doubtful as to whether an evasion of
either of these prohibitions is in
volved or as to whether funds may
properly be classified as savings de-
posits, it should not classify the funds
in such manner unless, after diligent
inquiry into the nature of the deposit,
it is satisfied in the light of the in
formation developed that no evasion
of either such prohibition is involved
and that the classification Of the
funds as savings deposits is proper,
OeuuIte 1uL1It t1CCOuutS.
Generally speaking and without
intending to exclude other classes of
deposits, the Federal Reserve Board
feels that deposits which consist of
funds in relatively small amounts
which are being or have been accu-
mulated by persons of limited f1nan-
cial means may be considered pre-
sumptively by the banks to be funds
accumulated for bona fide thrift pur-
poses.
Likewise it is believed that the same
presumption should usually obtain
with respect to funds which are being
or have been accumulated in order to
provide for old age or for contingen-
cieS which may not be forseen, such
as sickness or accident, and also with
respect to funds which are being or
have been accumulated in order to
provide for anticipated expenditures
such as, for example, the purchase of
homes, furnishings, ETC., and Christ
mas or vacation expenses, as well as
for anticipated obligations falling due
within a reasonable time, such as tax
liabilities or insurance premiums.
"It would seem that deposits of
corporations in most cases probably
would not consist of funds accumu-
lated for bona fide thrift purposes;
but here again no general rule can
be laid down. Funds of business
enterprise which are temporarily idle
such as surplus funds or funds COM
monty known as reserve funds would
~ ardiY1 ri1,, fn nnY1ctif11fo
funds accumulated for bona fide thrift
purposes. With respect to firms and
individuals engaged in business, the
nature of the business may be i'm
portant in determining this question.
Funds deposited by one bank in an
other would not, in the opinion of
the board, constitute funds accumu-
lated for bona fide thrift purposes. In
some instances the amount of the
funds on deposit may be a factor for
consideration in determining the pro-
priety of their classification as saw
ings deposits.
Cases Must Stand Alone.
"None of the considerations men
toned above is to be considered as
conclusive of the question whether
funds may be regarded as accumulated
for bona fide thrift purposes or as
savings deposits, and as indicated,
each case must be determined in the
light of its particular circumstances.
THE Federal Reserve Board feels
that questions as TO whether de-
posts may be regarded as funds ac-
cumulated for bona fide thrift pur-
poses should be considered by the
member banks in the exercise of their
best judgment and in the light OF
the provisions of the law and the
regulation. 1t would not be practic-
able for the Federal Reserve Board
to undertake to determine such ques-
tions as they may arise in individual
cases with member banks when de-
posits are offered to them.
"As indicated in the regulation, II
the circumstances with respect to the
deposit are such as to raise a ques-
tion as to whether it is properly
classified as savings deposit, the
bank must be prepared to show
p1o tI,of ic danOcif nnncictip0