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Article: Banks' Fed reserves may be outmoded. (the Federal Reserve Board) (Column)
- Article from:
- American Banker
- Article date:
- August 5, 1993
- Author:
CopyrightCOPYRIGHT 1993 SourceMedia, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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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 should be clear about the central issue.
It seems to be widely assumed that the Federal ...