Monday, April 18, 2011

Federal Reserve Wants to Repeal Reg Prohibiting the Paying of Interest on Checking Accounts

The Federal reserve Board is proposing a rule to repeal the Fed's Regulation Q, which prohibits the payment of interest on demand deposits by institutions that are member banks of the Federal Reserve System.

The proposed rule would also repeal the Board's published interpretation of Regulation Q and would remove references to Regulation Q found in the Board's other regulations (D and DD), interpretations, and commentary.

The Board is also seeking comment on whether the repeal of Regulation Q is expected to have implications for balance sheets and income of depository institutions, short-term funding markets such as overnight federal funds market, the demand for interest-bearing demand deposits, and competitive burden on smaller depository institutions.

The Fed's full proposal is here.


  1. I don't trust those schmucks/shysters. Why would they be doing this, Doc?

  2. My guess is they are doing this because they dont want more money flowing out of checking accounts. If people are not getting interest for putting their money in a checking account they might pull it out of the bank and put it in something like gold or silver. Money going into checking accounts is inflationary because banks can pyramid those deposits, so money flowing out of them is deflationary.

  3. Makes sense. Thanks, Dan!

  4. Credit unions pay interest on checking. This would allow banks to compete better against CUs. In addition, there is the more basic question of who business is it if a bank wants to pay interest or not? In the mid-1800s, following the so-called "Panic of 1857" banks stopped paying interest on all demand accounts, including saviings. They figured it was a fair exchange: they don't charge for storage of your gold coins and you don't charge for the use of them. In any case, the deal is between banker and client and begs no third party interest.