A federal regulatory committee yesterday voted to increase the interest rate ceilings on passbook savings accounts at banks and savings and loan institutions by 1 1/2 percentage points.
The higher rate ceilings adopted by the Depository Institutions Deregulation Committee will allow banks to pay 5 3/4 percent and S&Ls to pay 6 percent on savings deposits beginning Nov. 1. The present ceilings are 5 1/4 percent at banks and 5 1/2 percent at thrift institutions.
The DIDC action was immediately attacked by the U.S. League of Savings Associations as an "incredible blunder." William O'Connell, executive vice president of the league, said "the increase in passbook rates will increase the interest costs borne by financial institutions and boost interest rates at a time when the high level of interest rates already threatens to destroy President Reagan's economic program. The DIDC is a menace to the nation's financial system and the Congress should move promptly to abolish the DIDC before it does further damage."
Although the higher rate has been approved, institutions may choose to pay a rate lower than the new ceiling.
In another development, the DIDC voted unanimously to establish a new deregulated IRA/Keough account.
Effective Dec. 1, institutions may begin offering new IRA/Keough accounts with a maturity of a year and a half or longer with no interest rate ceiling. They would be permitted to offer and accept periodic additions to the accounts based on whatever rate structure they choose.
Before adopting the new rate ceiling on passbook savings, the DIDC rejected a proposal by its chairman, Treasury Secretary Donald Regan to push the ceilings to 6 3/4 percent and 7 percent.
Regan argued that the committee should "strike a blow for the little guy."
However, Richard T. Pratt, chairman of a Federal Home Loan Bank Board, and Paul A. Volcker, chairman of the Federal Reserve Board, argued successfully that the higher rates would have an adverse effect on the earnings of financially troubled thrift institutions.
The DIDC staff estimates there is about $3.2 billion in passbook savings accounts at all institutions.
Earlier, the committee had received a proposal to raise the passbook ceilings to at least 10 percent.
In other action, the DIDC reinstituted its schedule to phase out ceilings on savings accounts maturing in four years or more.
The committee approved the new schedule in May but the U.S. League of Savings Associations filed suit here in federal court to block enforcement of committee's action.
A federal judge while not barring the committee from going ahead with the schedule altogether ruled that it had to put the proposal out for public comment
After receiving a less than overwhelming response from the public the committee decided yesterday to go ahead with the original schedule.