Bernanke Wants Fed to Pay Interest on Bank Reserves

NEW YORK -- Federal Reserve Chairman Ben S. Bernanke, seeking ways to stabilize money markets, will ask Congress for authority to pay interest on commercial-bank reserves this year, a person familiar with the discussions told Bloomberg News.

The central bank isn't authorized by Congress to begin making such payments until 2011. Allowing interest on bank reserves may enable the Fed to pump more funds into the banking system without pushing its main policy rate lower, in effect separating action to boost liquidity from monetary policy, Bloomberg News reported.

Fed staff started discussions this week with Congress about bringing forward the date that interest can be paid, the person told Bloomberg News on condition of anonymity. Technical details of how the program would work, and what rate the Fed would pay, would likely need further study and discussion by the FOMC, the person told Bloomberg News.

Also, Federal Reserve Board Governor Randall Kroszner said on Wednesday that the Fed would work with a national affordable housing group to help stabilize neighborhoods with high foreclosure rates, Reuters reported.

Kroszner, in remarks to a training conference sponsored by NeighborWorks America in Cincinnati, did not address Fed monetary policy or the Fed's broader outlook for the U.S. economy, Reuters reported.

Kroszner announced a partnership with NeighborWorks America to help teach the affordable housing umbrella group's local affiliates and other nonprofit community organizations how to acquire, rehabilitate and manage foreclosed homes, known as "real estate owned," or REO, on bank balance sheets, Reuters reported.

-- NYSSCPA.org News Staff

Posted on 5/7/08