WASHINGTON Bankers don't like the Federal Reserve's third stab at reconfiguring annual percentage yields under Truth-in-Savings any more than they
did its first two tries.
Saying compliance would be expensive for banks and bad for consumers, most of the 464 comment letters due last week opposed any change.
Banks are currently using the APY calculation originally proposed by the Fed in June 1993 when Regulation DD took effect.
Ironically, it was banker complaints that led the Fed to revise the calculation twice since then.
Bankers claim the currentformula gives customers contradictory rates - the yield could be less than the interest rate.
So the Fed last December proposed an alternative that shows the effect of compounding, as well as the value of receiving interest during the term of the accotlnt.
Negative comments on that option prompted the Fed to withdraw it in May.
Simultaneously, the central bank issued its third proposal. It, too. reflected the time value of money but clarified that, once interest is credited to an. account, it becomes part of principal.
Bankers didn't like that either, and they asked that the option dismissed in May be revived.
The Fed reinstated it in July but said only banks that offer noncompounding, multiyear CDs paying interest at least annually could use it
In the comment letters filed by Sept. 6, many bankers focused on the third opnon. complaining that it would force them either to spend a lot of money to compound interest monthly or to drop customers' option to get monthly checks.
Marvin W. Smith. senior vice president at Boatmen's Bancshares, St. Louis, said that, under the second alternative, his bank would have to tell 84,000 customers they can't get payments the way they'd like or spend $420,000 to compound interest monthly.
"Most of these customers are senior citizens and rely on monthly interest checks for support," Mr. Smith said.
Donna Lee Varner, assistant vice president of Gilmer National Bank, Gilmer, Tex., reminded the Fed that it is customers who are affected.
"Let's not forget, it is their money," she said.
Changing the rule either way would eclipse the purpose of the law, said other bankers.
"The additional complexity could cause confusion to both consumers and bank personnel and complicate one of the primary purposes of the Truth-in-Savings Act: to assist consumers in comparing deposit accounts," said Patrick M. Frawley, director of the regulatory relations group at NationsBank Corp.
A coalition of the American Bankers Association, Consumer Bankers Association, Independent Bankers Association of America, and Savings and Community Bankers of America pushed for retaining the status quo, saying any change would only confuse consumers.
"Many consumers already shy away from the complicated concept of yields," the trade associations' letter said. "Additional APY permutations will only increase consumer confusion."
Bankers voiced a general frustration with all of the proposals.
"Banks spent millions of dollars complying with Regulation DD," said Greg Warren, vice president of Farmers State Bank, McPherson, Kan.
"To date, the only people that have questioned or cared about our new rate disclosures have been FDIC examiners."
Others said the change would only lessen banks' competitiveness.
"Since banks obviously are not the only place where consumers are 'shopping,' why should our standards for exactness in disclosure be so much higher than those of our competitors?" asked Steve Kelso, cashier at First National Bank, Carlyle, Ill.
