Word: passbook
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...other thrift institutions lost money. Wall Street analysts say that at least 20% of them are now operating in the red. Amid this disarray, the Government is quickly changing the nation's banking statutes. President Carter last week signed a new law phasing out interest ceilings on passbook accounts (now 5¼% for banks and 5½% for thrift institutions) and permitting banks everywhere to pay interest on checking accounts, a practice already pioneered in a few states. This will make banks and other savings and loans more competitive with high-flying money market funds that pay higher interest...
...Phase out, over the next six years, federal ceilings on the interest that banks and savings and loan associations (S and Ls) can pay depositors. Currently, commercial banks can pay only 5.25% and savings institutions 5.5% on their passbook accounts...
...amounts by selling certificates of deposit, usually in denominations of more than $100,000, at interest rates high enough to attract buyers. Not surprisingly, some of the biggest customers for the certificates have turned out to be none other than the money market funds. In sum, the more the passbook deposits in the banks have shrunk, the fatter have grown the money market funds, and the higher has climbed the cost to the banks of borrowing the money back again to stay in business...
...institutions have stopped making loans because it is impossible for them to earn any profit. Traditional lenders are also running short of cash because people are transferring funds from savings accounts to booming money market funds, which invest money in high-yielding securities and pay twice as much as passbook accounts. Perhaps three-quarters of the savings and loan associations in Chicago have stopped making mortgage deals...
...market for short-term borrowings to cover operating expenses. The move out of savings is badly hurting the thrift institutions. They face a tremendous competitive disadvantage and a sharp outflow of funds because the Federal Reserve's Regulation Q prohibits them from paying more than 5½% on passbook savings. A bill before the Senate would slowly phase out the interest rate ceilings by 1990. Meanwhile, says Robert Garver, president of Boston's Charlestown Savings Bank: "The money market funds are killing...