Magazine article American Banker

Greenspan Backs GOP Push to Make Fed Pay Interest on Required Reserves

Magazine article American Banker

Greenspan Backs GOP Push to Make Fed Pay Interest on Required Reserves

Article excerpt

Republican lawmakers vowed Wednesday to push for the Federal Reserve Board to pay interest on required reserves.

Senate Banking Committee Chairman Alfonse M. D'Amato, R.-N.Y., said his committee will hold hearings in September on the issue, and Rep. Jack Metcalf, R-Wash., pledged to introduce legislation late next week to lift the restrictions.

"The American people expect an efficient financial system," Sen. D'Amato said. "We must remember, when banks aren't paid interest on these deposits, it's really bank customers who are potentially losing money."

Fed Chairman Alan Greenspan, who was testifying before Senate Banking on the health of the economy, said he strongly supports paying interest on reserves.

In a July 14 letter released at the hearing, Mr. Greenspan said the ban on interest amounts to a "reserve tax" that banks spends considerable money to avoid.

Roger L. Fitzsimonds, chairman and chief executive at Milwaukee-based Firstar Corp., applauded the legislative efforts.

"Bankers have always felt they should be paid," he said. "We're leaving a lot of money on deposit and getting no return."

Because the Fed cannot pay interest on reserves, many banks are trying to sweep funds from traditional savings and checking accounts, which are subject to reserves, into money market accounts, which are exempt.

Robert Strand, a senior economist at the American Bankers Association, said fewer banks would feel pressure to offer sweep accounts if the restrictions were lifted. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.