What was the purpose motivating regulators to impose interest ceilings on bank savings accounts? What impact did this eventually have on the money markets?

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What was the purpose motivating regulators to impose interest ceilings on bank savings accounts? What impact did this eventually have on the money markets?



Answer: Following the great depression, regulators were primarily concerned with stopping banks from failing. By removing interest-rate competition, bank risk was substantially reduced. The problem with these regulations was that when the market interest rates rose above the established interest rate ceiling, investors withdrew their funds from banks.

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