What is the consequence of forced closure on a Money Market Deposit Account (MMDA)?

When a Money Market Deposit Account (MMDA) faces forced closure, typically due to regulatory or compliance issues, it can be converted into a transaction account, which allows for more frequent withdrawals and transactions. This transformation is significant because MMDAs originally have withdrawal restrictions to encourage savings, so the forced closure would eliminate those limits and change the account's nature.

Moreover, when an account becomes a transaction account, it generally means that the bank must hold reserves against the deposits in that account. This reserve requirement is mandated by Federal Reserve regulations, ensuring that banks maintain a certain amount of liquid assets, which is crucial for the stability of the financial system.

Thus, the correct answer encompasses both the change in the account's classification to a transaction account and the resulting requirement for reserves to be established due to the nature of these accounts and the regulations governing them. This knowledge is essential for understanding how different types of deposit accounts are regulated and the implications of their operational statuses.