Regulation Q: The Money Markets and Housing

The critic of controls who is persuaded that one control begets another certainly finds supporting evidence in the history of regulation of deposit rates. Although many years passed before increased market rates and the prohibition of interest payment on demand deposits induced a sufficiently large substitution of time for demand deposits to make the original Regulation Q rates into a binding constraint, not many additional years later we find a new and very complex set of controls on both the assets and liabilities of banks and non-bank financial institutions. Supplementing the direct control of commercial bank demand and time deposit interest rates, there is now a regulated spectrum of rates for liabilities classified by age, maturity, and type of institution and a companion set of reserve requirement ratios and borrowing arrangements that would take more than my allotted time to describe fully. That the present regulations ¿ire not regarded as satisfactory to those who believe regulations are useful quickly becomes clear to any reader of the financial press. Proposals for selective controls on assets compete for space with expressions of concern about the unregulated Euro-dollar market and explanations of new or substitute regulations.