Federal regulators yesterday created another new insured certificate of deposit designed to help banks and thrift institutions compete with money market mutual funds.
The new certificates are intended to be of particular value to the ailing savings and loan industry and Treasury Secretary Donald T. Regan made it clear that banks will not get the fully deregulated accounts they seek until Congress passes legislation strengthening the role of the S&Ls.
The Depository Institutions Deregulation Committee (DIDC) approved the new certificate proposed by Regan by a 4 to 1 vote. Federal Deposit Insurance Corp. Chairman William M. Isaac, who favors faster deregulation, cast the dissenting vote after Regan, DIDC's chairman, required members to vote yes or no on the entire package.
The new certificate, which becomes effective Sept. 1, will have a $20,000 minimum and be tied to the three-months Treasury bill interest rate. Commercial banks must pay one quarter percentage point less than that rate. If the balance falls below the minimum, the interest rate is reduced to 5 1/4-5 1/2 percent. The certificate will have a maturity ranging from one week to one month at the discretion of the issuer. Both the ceiling and the quarter point differential will be lifted nine months later.
No third party checks or "sweeps" into the account from another will be permitted. Early withdrawal carries a penalty of loss of interest of no less than the amount that would have been earned for one half the duration of the certificate. Federal Reserve Chairman Paul A. Volcker argued for a stiffer penalty and DIDC members will have 10 days to make a final decision on the issue.
The committee members also approved liberalized rules on indexing and bonus payments for three and one half year no-ceiling certificates.
The American Bankers Association, which failed to get the deregulated certificate it sought, announced it would henceforth turn to Congress, rather than the DIDC, for help. Roy Green, chairman of the U.S. League of Savings Associations, called the new certificate "a step in the right direction; but the major step is passage of asset powers."
Both Green and Regan were referring to legislation that is currently stalled in the Senate Banking Committee. The controversial bill would give thrift institutions broader powers, such as the ability to make commercial loans, at the expense of other segments of the financial industry.