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February 1986, 
Vol. 68, No. 2
Posted 1986-02-01

Requiem for Regulation Q: What It Did and Why It Passed Away

R. Alton Gilbert examines the effects of Regulation Q over the 53 years it was in effect. He concludes that, throughout its history, Regulation Q policy did not achieve the results intended for it. The policy as modified in 1966 became especially disruptive to the operations of depository institutions as they lost deposits whenever market interest rates rose above the ceiling rates. Congress decided in 1980 to phase out Regulation Q over six years. As the ceiling rates were raised and eliminated, thrift institutions lost the rate advantage that Regulation Q had given them on small-denomination time and savings deposits. As a result, the share of small-denomination time and savings deposits declined at thrift institutions as it rose at commercial banks. In response, thrift institutions have increased their share of large-denomination time deposits substantially to avoid an erosion of their share of total time and savings deposits.