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Tuesday, February 16, 2016

'The Fed’s Interest Payments to Banks'

Ben Bernanke and Don Kohn:

The Fed’s interest payments to banks: At Janet Yellen’s recent hearing before the House Financial Services Committee, a few representatives expressed concern that the Federal Reserve is making interest payments to banks. Specifically, the Fed uses authority granted by Congress in 2008 to pay interest on the reserves that banks hold with it. Total payments to banks last year were about $7 billion. Why is the Fed paying such sums to banks? Are they “giveaways” to the financial sector, as some have implied? We’ll argue in this post that the interest payments the Fed is making are well-justified. In particular, they are essential to prudent monetary policy in current circumstances and do not unduly subsidize banks. ...

    Posted by on Tuesday, February 16, 2016 at 08:18 AM in Economics, Monetary Policy | Permalink  Comments (55)


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