Major sources of bank funds have changed in the past thirty years. This is due directly to the Federal Reserve's Regulation Q, which places ceiling limits on deposit rates. Banks would increase competition by offering higher interest rates than another bank. To keep bank deposit transactions stable, Regulation Q was imposed. Also, interest rates on assets increased greatly during this time.
             Individuals and business firms then, as a result, are willing to hold only the amount of transactions deposits they deem necessary for day-to-day payments. If more is held, then more interest must be paid out to the Fed.
             These transactions deposits were later replaced with large-size negotiable CDs and miscellaneous liabilities.
             Bank regulators generally want banks to have more equity capital while bankers usually want to have less. Regulators of banks receive interest it charges on banks. Therefore, the more capital equity held by a bank, the higher the return the bank regulator receives on interest income. Bankers usually want to have less because, again, if they have more, they have to pay out more on interest. The interest payment is relative to the amount in which the bank has in it's possession.
             Banks have replaced many fixed-rate loans with floating-rate loans. This is due to the interest rate risk l a disparity in the maturity of a bank's assets and liabilities. Long-term securities are affected greatly if the interest rate changes. The present value of a bank's assets and liabilities are too affected by a change in interest rates. The value of assets will fall by more than that of the liabilities.
             If interest rates increase, a bank's assets that have longer maturities will experience a lower net interest margin because higher interest rates are paid on deposits. For this reason, many banks have converted from fixed-rate, unchanging interest rate, loans to floating-rate loans, loans with interest rates ...