Deposit Reclassification

Deposit reclassification is the moving of deposit balances from one regulatory or reporting category to another. The best-known example is the US "retail sweep" programme, which spread from the mid-1990s: banks set up each checking account with a linked money market deposit account and, behind the scenes, moved idle balances into it. Under the Federal Reserve's Regulation D, savings-type deposits carried no reserve requirement while transaction accounts did, so reclassifying the money cut the reserves a bank had to hold, without changing what the customer saw. The incentive largely disappeared when the Fed set reserve requirement ratios to zero in March 2020. The term is also used more generally for any recategorisation that changes a deposit's treatment, for example in deposit insurance or liquidity rules. Also see sweep accounts and demand deposits.