Magazine article American Banker

Over Banks' Objections, Fed Changes Way of Figuring Annual Percentage Yields

Magazine article American Banker

Over Banks' Objections, Fed Changes Way of Figuring Annual Percentage Yields

Article excerpt

WASHINGTON -- After more than a year of debate. the Federal Reserve Board voted 4-3 Wednesday to change the way banks calculate annual percentage age yields under Truth-in-Savings.

The new calculation, opposed by the banking industry. will reflect troth the effect of compounding as well as the value of receiving interest during the term of an account.

The new rule takes effect immediately although regulators will not enforce it until September, the Fed said.

Since June 1993, when Regulation DD kicked in and banks had to start disclosing annual percentage yields. the calculation has produced separate rate and yield numbers.

Fed Vice Chairman Alan S. Blinder said the old formula is simply wrong.

"Two plus two is four no matter how many commenters say it is 3.8," Mr. Blinder said.

He said the new calculation will best accomplish what Truth-in-Savings is designed for -- helping consumers companion-shop among banks.

The new rule was one of several options the Fed has been considering since December 1993.

The alternative selected is the least popular: 98% of the 450 commenters on this version opposed it.

Although Mr. Blinder claimed the change will not impose higher costs on banks, Diane Casey, executive director of the Independent Bankers Association of America, said the rule will force banks to spend money on training, computer software, and printing.

"It's an ivory tower approach," she said. "In the real world, it's not going to make a difference" to customers. …

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