The Flow of Deposits Banking 4.3

Money Moves! And many things affect it… Money supply adjustments Money already in circulation Demand for goods & services Inflation outlook = Economy The best predictor of the economy is the past (that’s why we collect & analyze so much data) Market Forces

Deposits & the Fed Reserve requirements don’t change as much & aren’t as much a factor in bank lending as general economic conditions Reserve requirements only apply to M1 (checkable deposits). M2 thru MZM are at the mercy of market forces, not under control of Fed Fed doesn’t control other forms of commerce, i.e. stockholdings MONEY SUPPLY IS DETERMINED BY SUPPLY & DEMAND FOR CREDIT Fed may respond to this but doesn’t create it

Adjusting the Money Supply Fed can put more money into economy by buying US government securities on open market creates new money raw money-sellers of the securities deposit in financial institutions, giving banks more money to lend … Multiplier effect!

Adjusting the Money Supply Fed can take money out of the economy to slow economy sells it’s Treasury securities Since they are very secure, there is always a market for them They are paid for from bank deposits, leaving less money in the system Adjust discount rate If discount rate is low, banks more likely to borrow & use that money If discount rate is high, banks are less likely to borrow

Think about it… How does the Fed influence the flow of deposits? Why is it sometimes hard to predict the flow of deposits in the banking system? How might political or national events affect the flow of deposits in the banking system? Do you think the government should have more direct control of the economy and thus the flow of deposits in the banking system?

Deposit Regulations Banking 4.4

Deposit Regulations Banks & customers have a legal relationship w/rights & responsibilities on both sides Fed, state & local governments checks to see deposit account documents are: Specific Clear Followed by banks

Governing Documents Account rules Deposit rate schedules Fee schedule Check hold policies Disclosure statements

Account Rules Reference to Governing Documents Signature policies Opening & Closing Accounts Deposit Collection Overdraft Policies Minimum balance/Service charges Withdrawal Policies Check policies Stale check Post-dated check Account statement policies Other policies Waivers

Think about it… How do governing documents and account rules differ? Why do banks supply a separate set of account rules as part of the governing documents for each account? Do you think most people carefully read the documents associated with their bank accounts? Why or why not? Why does the government feel it is necessary to require that written copies of documents related to bank accounts be provided to customers? In what circumstances might a bank waive a fee it had charged?