Word: depositors
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Even before these reforms, banks were trying to attract new savers with a variety of high-yielding time deposits and money-market certificates. These give much more interest than a passbook account; last week a six-month certificate paid 15.9%. But they usually require that the depositor keep his money in an account for six months or longer in order to earn the full interest...
Then clever moneymen discovered another loophole in the rules: give the gifts or bonuses to the depositor's friend. Gifts of cash generally have proven more popular than appliances and other goods, possibly because cash can be more easily divided...
...only loser in the deal appears to be the buddy depositor. Normally, he would earn much more interest if he placed the funds in a money-market fund rather than in a bank's passbook account or certificate of deposit. That should be enough to break up a friendship...
...action forced Arabs to recognize the unsettling fact that their deposits in American banks might also one day be frozen. Says Serat Al-Baker, an executive with the Kuwait International Investment Co.: "The investment world can no longer ever be the same as it was before the freeze. No depositor will ever again be quite as confident about putting his money in banks vulnerable to similar action by the U.S. or any other government...
...effort to ease the pain, the Federal Reserve in June 1978 allowed banks to begin offering any depositor willing to part with a minimum of $10,000 for six months an opportunity to earn a rate of return more or less equal to the money market funds. The new superrate was keyed to the interest that the U.S. Treasury must pay for its weekly sales of six-month bills to finance federal debt. This has helped slow the outflow of deposits, but in the process has forced up the cost of depositor funds to higher levels than ever...