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deposits away from the banks by offering higher interest
rates. The banks clearly would not have tolerated in-
definitely a continuing erosion of their deposit base, and
the Association of Banks would have been put under strong
pressure to abandon the agreement or at least substantially
modify it. A number of solutions were suggested. One was
that the banks should indeed be encouraged to abandon the
interest rate agreement to enable them to compete with deposit
taking companies for deposits. Another was that legislation
should be introduced to require deposit-taking companies to
conform with the interest rate agreement. Both of these
suggestions would have caused serious problems for deposit -taking
companies, because either solution would have led to a competitive
assault by the banks. Only the very strong would have survived this
assault.
5.
It was decided after very careful consideration of the
available alternatives that the least painful way to deal with this
problem was through the introduction of what has now become known as the three-tier structure. So just as the interest rate
agreement of July 1964 had its origins in the cut throat competition.
between banks in bidding up rates of interest in the early 60's, the
three-tier system was introduced to obviate the likelihood of a dangerously destabilising situation developing between different groups of institutions in the monetary sector. Moreover, while
banks were controlled, the deposit-taking companies had great
licence.
6.
I do not wish to leave you with the impression that the
/protection of...
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