Fed Repeals Regulation Q, Prohibition Against Payment of Interest on Demand Deposits

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.

If you have questions on the impact of this rule, please contact the experts listed below at (800) 270-9629. To receive banking updates from PYA on Twitter, click here.

WE ARE REQUIRED BY IRS CIRCULAR 230 TO INFORM YOU THAT THE FOLLOWING DISCUSSION WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, NOR RELIED UPON, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW. THE ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED IN THE DISCUSSION. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.


Mike Shamblin

Mike Shamblin

Managing Principal of Audit & Assurance Services

Matt Neilson

Matt Neilson

Principal

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