Magazine article American Banker

Even If Reserves Earned Interest, Bankers Tell Fed, Sweep Accounts Would Stay

Magazine article American Banker

Even If Reserves Earned Interest, Bankers Tell Fed, Sweep Accounts Would Stay

Article excerpt

Most banks would continue to offer sweep accounts even if the Federal Reserve Board paid interest on reserves, according to a government survey released after the markets closed Friday.

The Fed's annual senior financial officer survey finds that only three of the 44 large banks contacted would be "very likely" to eliminate sweep programs; 24 banks said they were unlikely to dismantle these programs.

Also, 30 banks said they would continue to minimize required reserves because they could earn more investing these funds than by keeping them in interest-bearing accounts at the Fed. Only five banks said they would abandon efforts to minimize reserves.

Several bills are pending in Congress that would authorize the Fed to pay interest on reserves. Some also would let banks pay interest on corporate checking accounts.

If banks could pay interest on corporate checking, most said they would peg the price to rates paid for short-term deposits. One-quarter of the banks, however, said they were considering a tiered pricing structure in which companies with high checking account balances would get higher interest rates.

The banks said they swept an average of $2.3 billion a day from non- interest-bearing checking accounts to interest-bearing money market mutual funds, repurchase agreements, and similar instruments. Those transfers would fall by one-third if interest were paid on corporate checking, the banks said.

Banks also expressed support for a so-called Lombard credit facility, similar to that used by European central banks. …

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