1. The Flow of Deposits
Banking 4.3

2. 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

3. 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

4. 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!

5. 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

6. 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?

7. Deposit Regulations
Banking 4.4

8. 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

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

10. 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

11. 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?