Magazine article American Banker

Truth-in-Savings: Fed Mulls Changes to Fledgling Rules

Magazine article American Banker

Truth-in-Savings: Fed Mulls Changes to Fledgling Rules

Article excerpt

WASHINGTON - The new Truth-in-Savings rule has been in effect just three weeks, and the Federal Reserve has begun tinkering with it.

The Fed's board of governors on Wednesday proposed changing the way banks calculate annual percentage yields for some certificates of deposits. While the proposed change is relatively minor, revisiting the rules in any form so soon after implementation raised eyebrows even among the governors.

"I have no taste for changing a regulation that's only been in effect for three weeks," said Fed Governor Edward W. Kelley. "With the ink barely, dry, we're finding flaws in it."

Despite this concern. the board decided that making the formula as accurate as possible justified the added burden on the industry the change will generate.

|We've Got to Do It Right'

"If we are going to specify how, each [bank] should calculate it, we've got to do it right." said Fed Vice Chairman David W. Mullins. "I can't believe it's going to be very pleasant, but I don't think we have an alternative."

The Fed voted to change the way banks calculate the annual percentage yield for CDs that do not compound interest. The proposed change came in response to complaints from both bankers and the securities industry that the existing formula could confuse investors considering these kinds of accounts.

In proposing to change the calculation. the Fed offered two alternatives.

A more simple revision recommended by the Fed's staff would substitute the interest rate for yield on these accounts. …

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