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Monetary Control Act

Monetary Control Act

What Was the Monetary Control Act?

The Monetary Control Act (MAC) was a federal law passed in 1980 that changed bank regulations essentially. The bill was proposed in response to record two-digit inflation experienced in the late 1970s, which prompted the idea of monetary control by Congress. The legislation was endorsed in by Jimmy Carter on March 31, 1980.

Understanding the Monetary Control Act

The Monetary Control Act was legislation that changed banking extensively in the mid 1980s, and it addressed the primary huge reform in the banking industry since the Great Depression.

Title 1 of the act was itself the Monetary Control Act. It required that banks accepting deposits from the public occasionally report to the Federal Reserve System (FRS) and keep up with required reserve essentials. One of the points of the act was to put more tight controls on Federal Reserve member banks, making services charged to them in accordance with banks and other financial institutions.

Preceding the act, certain services charged to the member banks were free, yet the act guaranteed the price of financial services to be competitive, and in accordance with the banks. Starting in September 1981, the Fed charged banks for a scope of services generally accommodated free, similar to check-going through, wire transfer of funds, and the utilization of automated clearinghouse facilities.

Title 2 of the Monetary Control Act

Title 2 of this act was the Depository Institutions Deregulation Act of 1980. This legislation deregulated banks, while at the same time giving the Fed more control of non-member banks.

It required non-member banks to maintain Federal Reserve choices at the same time, maybe most prominently, the bill permitted banks to combine. It likewise deregulated interest rates paid by depository institutions like banks, making them a question of private carefulness (beforehand this was regulated under the Glass-Steagall Act). It permitted credit unions to offer transaction accounts, which included checking accounts and savings accounts. The bill additionally opened the Fed discount window and extended reserve requirements to every single domestic bank.

The Depository Institutions Deregulation Committee (DIDC) is a six-member committee laid out by Title 2 of the MAC, which had the primary purpose of gradually eliminating interest rate roofs on deposit accounts continuously 1986. The six members of the Committee were the Secretary of the Treasury, the chair of the Board of Governors of the Federal Reserve System, the chair of the FDIC, the chair of the Federal Home Loan Bank Board (FHLBB), and the chair of the National Credit Union Administration Board (NCUAB) as voting members, and the Comptroller of the Currency as a non-voting member.

The Monetary Control Act additionally contained several provisions connecting with bank reserves and deposit requirements. It made the famous Negotiable Order of Withdrawal (NOW) accounts, which are accounts that have no restrictions on the number of checks that can be written. Moreover, it raised the amount of FDIC insurance protection from $40,000 to $100,000 per account. Note that the FDIC limit has since been raised to $250,000.

Features

  • It was put in place in response to twofold digit inflation experienced in the U.S. during the 1970s.
  • The Act additionally phased out interest rate roofs on customer deposits and laid out the Depository Institutions Deregulation Committee.
  • The Monetary Control Act of 1980 (MAC) was an important piece of financial legislation that required all depository institutions to meet Federal Reserve least requirements.