Final answer:
Regulation Q was a Federal Reserve policy aimed at maintaining bank profitability by limiting competition over interest rates. It also led to depositors moving their money to higher-return instruments and prompted banks to create new financial products to stay competitive.
Step-by-step explanation:
Regarding the statements about Regulation Q:
- a. It was administered by the Fed - True. Regulation Q was indeed a Federal Reserve policy.
- b. Its goal was to maintain bank profitability (and therefore solvency) by limiting competition between banks - True. The regulation aimed to prevent banks from engaging in excessive competition over interest rates.
- c. It caused depositors to move their money out of banks - True. High-interest rates outside banks enticed depositors to move their money to other financial instruments offering higher returns.
- d. Banks developed new financial instruments to remain competitive with non-bank finance - True. In response to Regulation Q, banks created new financial products to attract and retain customers.
Bank regulation is important to maintain the solvency and stability of financial institutions. Regulations include reserve requirements, capital requirements, and investment restrictions to minimize risks. To adapt to regulations and competition, banks have historically developed various financial products and services.