33) Two factors gave impetus to the creation of MMMFs: the high inflation of the 1970s, which became embedded in market expectations, and the rise of market interest rates to levels much higher than those permitted by Regulation Q interest rate ceilings
These cross-product terms are included since the impact of these creditor remedies may vary with the level of the interest rate ceiling
When interest rate ceilings
are in place, high-risk customers will be denied a loan at institutions where the ceilings apply.
As with ceilings on deposits, government-imposed interest rate ceilings
on loans can also limit competition.
Restiveness about the Reg Q structure came to a head and the interest rate ceilings
were gradually removed.
The interest rate ceilings
on time deposits of less than seven days and constraints on banks providing benefits for deposits, such as gifts, were lifted in July last year.
Historical comparisons of deposit rates can be tricky, in part because retail deposit rates were subject to interest rate ceilings
before the 1980s.
In particular, the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980, which mandates the gradual phaseout of the interest rate ceilings
, and the Garn-St.
There are some other interest rate ceilings
(on some types of credit and government-insured mortgages) still in force, but these are not serious interventions by the government [Cargill pp.
When the old interest rate ceilings
were finally phased out in 1980, that at least helped commercial banks compete without having to offer us toasters in lieu of higher interest.
The purpose was to allow banks and other financial institutions to conduct a deposit and loan business with foreign companies and individuals, including foreign banks, without being subject to reserve requirements or to the interest rate ceilings
of the Federal Reserve Board.
However, this improved service may have resulted from the existence of interest rate ceilings
on deposits that have caused banks to overinvest in real physical capital.