Monetary Control Act What It Means How It Works
The Monetary Control Act (MAC) was a federal law passed in 1980 that significantly changed bank regulations in response to record two-digit inflation in the late 1970s. The legislation was signed into law by Jimmy Carter on March 31, 1980.
Key Takeaways:
– The MAC required all depository institutions to meet Federal Reserve minimum requirements and phased out interest rate ceilings on customer deposits. It also established the Depository Institutions Deregulation Committee.
Understanding the Monetary Control Act:
The MAC represented the first significant reform in the banking industry since the Great Depression. Title 1 of the act required banks accepting deposits from the public to report to the Federal Reserve System (FRS) and maintain required reserve minimums. The aim was to put tighter controls on Federal Reserve member banks. Previously, certain services charged to member banks were free, but the act ensured that the price of financial services was competitive and in line with the banks. Starting in September 1981, the Fed began charging banks for services like check-clearing, wire transfer of funds, and the use of automated clearinghouse facilities.
Title 2 of the MAC was the Depository Institutions Deregulation Act of 1980. This legislation deregulated banks and gave the Fed more control of non-member banks. It allowed banks to merge and deregulated interest rates paid by depository institutions. It also allowed credit unions to offer transaction accounts and opened the Fed discount window. The Depository Institutions Deregulation Committee (DIDC), consisting of six members, was established to phase out interest rate ceilings on deposit accounts by 1986. The MAC also included provisions related to bank reserves, deposit requirements, and the creation of Negotiable Order of Withdrawal (NOW) accounts. It raised the FDIC insurance protection from $40,000 to $100,000 per account. Note that the FDIC limit has since been raised to $250,000.
