Is the Federal Reserve giving banks a $12bn subsidy?

2017-03-19T08:55:33-07:00

The Economist - 3/18/2017 - Or is the interest the Fed pays them a vital monetary tool that benefits the taxpayer? Every time the Federal Reserve has raised rates since the financial crisis, as it did on March 15th, it has done so in part by increasing “Interest On Excess Reserves” (IOER). This obscure policy rate is surprisingly controversial. Jeb Hensarling, the Republican chair of the congressional committee that oversees the Fed, has called it a “subsidy” to some of the largest banks in America.
To understand the argument, consider the Fed’s year-end financial statement. In 2016 it earned $111.1bn in interest income on its vast portfolio of securities. But it also paid JPMorgan Chase, Wells Fargo, and other mostly big banks $12bn in interest on excess cash deposited at regional Federal Reserve banks. Such IOER payments are both woefully unpopular and critical to the Fed’s monetary policy. Read more @ http://www.economist.com/news/finance-a ... l-benefits

Statistics: Posted by McFurd — Sun Mar 19, 2017 9:55 am

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Is the Federal Reserve giving banks a $12bn subsidy?