Fed Repeals Regulation Q, Prohibition Against Payment of Interest on Demand Deposits
Recently, the Board of Governors of the Federal Reserve System (Board) published a final rule repealing Regulation Q, Prohibition Against Payment of Interest on Demand Deposits, pursuant to section 627 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
A total of 62 comments were received in the period leading up to the proposed rule taking effect with 40 banks providing feedback. The majority of the feedback received by the Board opposed the repeal of Regulation Q. In the words of several commentators, the repeal of Regulation Q would have devastating effects on smaller banks and community banks. One concern voiced by smaller banks was the expectation that larger banks will lure customers away by offering higher interest rates on demand deposit accounts that cannot be matched by smaller institutions. Other concerns raised from the repeal include an increased cost of funding, increased interest rate risk, decreased earnings and liability sensitivity, among others.
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