Banks' Fed reserves may be outmoded. (the Federal Reserve Board) (Column)

American Banker | August 5, 1993| | Copyright

Should the Fed should start paying interest on bank reserves, or at least on the noncash portion of them?

This old issue, which seems to come up every few years, has been revived again.

The substance of the arguments never changes. A principal one in favor of the proposition goes like this:

Banks get no interest on their required reserves, which the Fed invests, turning most of what it earns back to the U.S. Treasury. In effect, banks are paying a tax in the form of lost earnings.

Whatever the merits or deficiencies of such arguments, we ...

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