Checkable deposits includes demand deposits, automatic transfer service account, Negotiable Order of Withdrawal account, and other checkable deposits. A demand account (or demand deposit) is a deposit account held at a bank or other financial institution, the funds deposited in which are payable on demand. ... An automatic transfer service account is a deposit account that allows the transfer of funds from a savings account to a checking account in order to cover a check written or to maintain a minimum balance. ... An interest-bearing account on which checks may be written. ...
Assumptions include: all liabilities are checkabledeposits, depository institutions do not keep excess reserves; people desire to hold only additional checkabledeposits and do not want to hold additional currency, and all assets are either reserves or loans.
When the proceeds of the loan are spent, these funds end up as deposits possibly in a different depository institution(remember that we are assuming that none of the proceeds of the loan end up as currency).
During bank panics, people want to shift from checkabledeposits to currency by withdrawing currency from banks--thus bank panics lead to a substantial increase in C/D. When engaged in illegal activity, most people do not conduct transactions using checks; instead they are more likely to conduct illegal activities using currency.
The average offering rate on other checkabledeposits (OCD) at the approximately 425 banks surveyed by the Federal Reserve during August was about the same as the fourth quarter of last year, 1.90 percent, while yields on both money market mutual funds and small time deposits were about 65 to 70 basis points higher.
To avoid the MMDA being classified for reserve purposes as a transaction deposit, all funds are moved from the MMDA to the checkabledeposit on the sixth transfer during the month.
Checkabledeposits held by larger depository institutions at the close of business are subject to a 10 percent marginal reserve requirement, while MMDA accounts have a zero requirement.
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