Abstract

IT IS SHOCKING TO REALIZE how hard the federal government has worked to prevent the small household saver from sharing in the high interest rates of the past five years. While rates on 4to 6-months commercial paper soared above 9 per cent, Federal Reserve authorities kept the maximum rate that member banks could pay on passbook savings at 4 per cent until January 21, 197O, when they raised the applicable maximum a mere half-point. With the co-operation of the Federal Deposit Insurance Corporation and the Federal Home Loan Bank Board, which have parallel regulatory authority over state nonmember banks, mutual savings banks, and savingsand-loan associations, rates on savings held in other depositary institutions have been similarly restrained. As the diSerentials between depositary savings rates and market rates on open-market instruments grew larger (as high as 4 and 5 per cent), depositors began to shift more and more funds from depositary institutions into openmarket paper. To forestall these shifts, federal authorities first sanctioned discriminatory relaxation of the ceilings on depositary-savings rates on large deposits, specifically those in excess of $10,000 at savings institutions and those in excess of $100,000 at commercial banks. Because growing numbers of small savers began to shift their funds into small-denomination Treasury bills (available in multiples of $1,000) and FMNA debentures (available in multiples of $5,000), the minimum denominations for these instruments were raised on February 25 to $10,000. Commercial-bank subordinated capital notes and debentures (so-called mini-bonds, currently available in maturities as short as two years and denominations as small as $100) are regarded as the next most important threat to nonbank intermediary deposits and shares, and the Federal Reserve Board announced on March 2nd that it is considering establishing for these instruments a minimum denomination of $20,000 and a minimum maturity of five years. Finally, interest rates on U. S. Savings Bonds -long and widely promoted as the perfect vehicle for the small saver and frequently forced down the throat

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