Monetary Control Act 1980

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By the year 1992 the US diminished their RRR from 12% to 10% on transaction stores, still the RRR have made an opposite movement to its expansionary effect via the Open Market Operation. The main objectives were to raise the gainfulness of the banks and to simplify credit issues.

The US Congress after years of discussion and debate have adopted legislative reforms on the reserve requirement rules so as to control and facilitate control of Money supply (M1) and put to an end the problem of lowering membership. The said legal statute is known as the Monetary Control Act of 1980 (MCA). This law mandated the reserve requirements to be set by the Federal Reserve for all depository institutions, no matter what their membership status is. This legal …show more content…
The said law has exempted the first $2 million of deposits from reserve requirements. It also mandated the low reserve tranche that is based transaction deposits and on aggregate growth in reservable liabilities and the yearly adjustments to the cutoffs for the exemption. As according to the new law the Federal Reserve to help thrift institutions and nonmember banks in their transition, the law has put in place a multiyear phase-in period, and it also outlawed putting up reserve requirements on vital fund sources for these institutions like the personal time and savings deposits. Finally, all the institutions that have reservable deposits not just only member banks were allowed access to Federal Reserve services and the discount window. This service includes fund transfers, check clearing, and the like, but these services were no longer to be provided free of …show more content…
If we look at the legislative history of the MCA, it clearly shows that the concern of Congress was on the possible adverse effects of the said Act on revenues of the Treasury Department. One of the assumed and feared effects is that the MCA can allow Federal Reserve from lowering the reserve requirement up to less than 8% on all transaction deposits. The legislative history also clearly shows that the Congress was anxious that the Federal Reserve will have an unfair competitive advantage over depository institutions due to the interest payment on reserves, which are prohibited in paying interest on demand deposits that affects Federal Reserve's role as a provider of financial services. Due to this concern and aware of the alterations created by the prohibition of interest payments on demand deposits; the Federal Reserve has advocated the removal of this ban in conjunction with the payment of interest on reserves. But neither of the said proposals was adopted. That resulted to the status quo of the reserve tax on depositories and their
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