The ¼ of 1% that the Fed currently pays US banks on the $2.5 trillion of excess reserves they hold at the 12 regional Fed banks is equal to $17.1 million in daily interest.
An interesting fight may be brewing, as the Fed floated an idea in their October minutes published a few weeks. One of their ideas is too stimulate the economy while at the same time reducing the “tapering” of asset purchases. How… by the Fed reducing the rate paid on excess reserves to encourage banks to make new loans to make up for their lost interest income.
The funny thing…. it didn’t take long for banks to make a stance as can be seen from this interesting piece from the Financial Times:
“Leading US banks have warned that they could start charging companies and consumers for deposits if the US Federal Reserve cuts the interest it pays on bank reserves.”
This is getting way to complicated!
For a link to the complete FT article click here.