Interest Sensitive Liabilities

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DEFINITION of 'Interest Sensitive Liabilities'

Any type of short-term deposit held by a bank that pays a variable rate of interest to the customer. Interest sensitive liabilities make up a significant amount of the assets of most banks. These liabilities include money market certificates, savings accounts and the Super NOW account.

BREAKING DOWN 'Interest Sensitive Liabilities'

Regulation Q of the Monetary Act of 1980 initiated a phaseout of interest rate ceilings by 1986. This, plus the elimination of most early withdrawal penalties have increased the volatility of demand deposit holdings in customer accounts. These changes have forced banks to learn new ways to manage their interest rate risk.

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