From a legal and financial accounting standpoint, the noun "deposit" is used by the banking industry in financial statements to describe the liability owed by the bank to its depositor, and not the funds that the bank holds as a acckunts of the deposit, which are shown as assets of the bank.
In the United Statesa negotiable order of withdrawal account NOW account is a deposit account that pays interest, on which an unlimited number of checks may be written. Gambling on the pope a negotiable order of withdrawal is essentially identical to a check drawn on a demand deposit accountUS banking regulations define the terms "demand deposit account" and "negotiable order of withdrawal account" separately.
And until JulyRegulation Q stated that a demand deposit could not pay interest. NOW accounts were structured to comply with Regulation Q. NOW accounts are considered checkable deposits, and are counted in the Fed 's M1 definition of the money supplyas well as in the broader definitions. Like now bank deposits, they are liabilities from the bank's perspective.
The Banking Act of specified that no member bank "shall, directly or indirectly, by any device whatsoever, pay any interest on any deposit which is payable on demand", and on August 29,this restriction was incorporated into the Federal Reserve Board's new Regulation Q. At first the general level of interest rates was low, and so the ban on demand deposit interest prevented only what would have been small interest payments, and there was no significant attempt at avoiding the ban.
But starting in the s, interest rates became higher and banks began to feel greater incentive to get around the ban. Non-pecuniary avoidance efforts included increased offering of convenience features such as large numbers of branch offices and giveaways of consumer goods to new customers. Pecuniary avoidance of the ban, known as implicit interest, electronic device to beat roulette preferred loan rates often tied explicitly to the customer's demand deposit balances and below-cost service charges for services such as check-clearing.
With no obvious adverse effects of NOW accounts in New England, Congress allowed them nationwide at all depository institutions beginning December 31, Beginning on March 31,as part of a general deregulation of interest rates, there was no longer an interest ceiling on NOW accounts, though interest was still prohibited on demand deposits. From Wikipedia, the free encyclopedia. The New York Times. Federal Reserve Bank of St. Retrieved from " https: Banking in the United States.