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Negotiable
Financial Instruments > This page
Large Negotiable Certificates of Deposit
(Source: Marc D. Morris and John R. Walter)
Domestic
CDS
Variable-Rate CDs (Member
section)
Issuing Banks (Member
section)
Deposit Notes and Bank Notes (Member
section)
History and Recent Development of Domestic CDs
(Member section)
Eurodollar CDS (Member
section)
Yankee CDs (Member
section)
Thrift CDs (Member
section)
Risk and Return (Member
section)
Ratings (Member
section)
Primary Market (Member
section)
Secondary Market (Member
section)
References (Member
section)
Since the early 1960s large
denomination ($100,000 or more) negotiable certificates of deposit (CDs)
have been used by banks and other depository institutions as a source
of purchased funds and as a means of managing their liability positions.
Large negotiable CDs have also been an important component of the portfolios
of money market investors. As of the end of 1992 outstanding large CDs
at large banks were $114 billion. Large CDs are generally divided into
four classes based on the type of issuer because the rates paid, risk,
and depth of the market vary considerably among the four types. The oldest
of the four groups consists of CDs issued by U.S. banks domestically,
they are called domestic CDs. Dollar-denominated CDs issued by banks abroad
are known as Eurodollar CDs or Euro CDs. CDs issued by U.S. branches of
foreign banks are known as Yankee CDs. Finally, CDs issued by savings
and loan associations and savings banks are referred to as thrift CDs.
Domestic
CDS (more info)
A certificate of deposit is a document evidencing a time deposit placed
with a depository institution. The certificate states the amount of the
deposit, the date on which it matures, the interest rate and the method
under which the interest is calculated. Large negotiable CDs are generally
issued in denominations of $1 million or more.
A CD can be legally negotiable or nonnegotiable, depending on certain
legal specifications of the CD. Negotiable CDs can be sold by depositors
to other
parties who can in turn resell them. Nonnegotiable CDs generally must
be held by the depositor until maturity. During the late 1970s and early
to mid-1980s, between 60 and 80 percent of large CDs issued by large banks
were negotiable instruments. The Federal Reserve stopped collecting separate
data on negotiable CDs in 1987.
A CD may be payable to the bearer or registered in the name of the investor.
Most large negotiable CDs are issued in bearer form because investors
can resell bearer CDs more easily. Registration adds complication and
costs to the process of transferring ownership of CDs. CDs with
original maturities of more than one year must be registered under the
Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA).
Federal banking agency regulations limit ...........................
More
information is provided in the Member Area
Recommended further reading:
Certificates
of Deposit: Advantages of certificates of deposit (CDs)
Certificates of Deposit Offerings
Certificates of Deposit: Utilizing foreign
fixed deposits (CD's) for credit lines
U.S. Certificate of Deposits
(CD’s)
Books
on Financial Instruments
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