Regulation D, which allows the bank to open accounts as Negotiable Order
of Withdrawal, or NOW, accounts for individuals, to allow depositors to
earn income on their deposits. Later, businesses were allowed to open
Money Market Accounts that also abide by Regulation D. One very impor-
tant difference between the investment bankers’ mutual funds’ money mar-
ket accounts and the depository institutions’ bank money market funds is
that the bank funds are FDIC-insured.
To limit sudden withdrawals of invested funds by the customers and to
allow financial managers and bank treasuries to project their cash needs
without compromising bank liquidity position, federal Regulation D places
a monthly limit on the number of transfers the customer may make from
his/her NOW or business Money Market Accounts (MMAs). Transfers af-
fected by this regulation include:
&Automatic teller machine (ATM) transactions
&Transactions done in person at a branch
&Transactions sent in by mail, express drop, or night drop with an origi-
nal signature
&Transfers made using the Internet
&Transfers made using the automatic telephone transfer system
&Overdraft transfers (made automatically to cover insufficient funds in
other accounts)
&Transfers made by a bank service representative on customers’ behalf
&Pre-authorized, automatic, scheduled, or recurring transfersRegulation D allows customers sixsuch transfers per month, per ac-
count, but only three of those may be made by check (a check counts against
the month in which it clears, not the month in which it was written).
In an RF bank, the sources of income for these accounts are generated
from the income the bank makes from the portion of the monthly rental
payment that represents the bank’s profit (return on capital invested, or
RonC, as was described in Chapter 10). The money can be considered as a
gift (hebah) to the depositors from the bank, in order to keep their short-
term investments. In deciding on the level of hebah, it is obvious that the RF
bank management takes into consideration what the competing Riba-based
conventional banks are offering and tries to make the bank’s hebah higher,
to attract new customers and not lose existing customers to other banks.
Investment Accounts in Time Certificates of Deposit (TCDs) TCDs are the
most important types of accounts for any bank. TCD money is invested in
the portfolios constructed by the RF bank’s credit department. This repre-
sents a very important challenge for the RF banker, because the RF bank
Operating an RF Bank in the United States 349