The Losses on Savings Deposits from Interest Rate Regulation

Abstract

Ceilings on the deposit rates payable by savings institutions under the Interest Rate Adjustment Act of 1966 resulted in interest income losses for savers. A recursive, rate-adjustment model of deposit rate formation is used to predict the deposit rates which would have been paid in the absence of the Act. The resulting estimate of lost interest income during the 1968 through 1970 period is over five billion dollars.