ABSTRACT
Certificates of Deposit (CDs) were first issued in 1961 by commercial banks in the USA. Before this, U.S. banks had issued registered, nonnegotiable certificates of deposit, which had limited appeal. The incentive for introducing a negotiable instrument was Federal Reserve Regulation Q which limited the interest rates that banks could offer on time and savings deposits. As interest rates in the money markets rose above Regulation Q levels, banks lost deposits to non-banks such as money market funds, which were not subject to this regulation. Deposits of $100,000 or more and with a minimum tenor or maturity of 14 days were exempt from Regulation Q, but investors managing overnight and short term funds needed liquidity. Negotiable CDs provided the mechanism for the holder to have liquidity by being able to sell holdings of CDs in a secondary market. The first issues of CDs in London were made in 1966 in U.S. dollars.
