Rate Deregulation and Deposit Shifting

The deregulation of interest rates has provided increasing opportunities and choices for depository institutions and for individuals. Recent regulatory changes have dramatically altered both the deposit holdings of consumers and the balance sheets of depository institutions. Of major importance were the introduction of money market deposit accounts (MMDAs) in December 1982 and Super-NOW accounts in January 1983. In addition, all new time deposits with maturities of over 31 days were deregulated in October 1983. Competitive pressures induced depository institutions to pay higher rates on these new unregulated deposit accounts. Rate differentials motivated customers to increase their deposit holdings, particularly those paying higher rates. These changes not only altered the deposit structure of commercial banks and thrift institutions but also their deposit share. Such developments, in turn, affected the volume of required reserves and the composition of monetary aggregates.