WASHINGTON — Financial institutions will soon be receiving interest on the money they are required to keep on deposit with the Federal Reserve, the agency announced today.
The central bank said the move will give it "greater scope to use its lending programs to address conditions in credit markets."
The change, which takes effect immediately, implements a provision of the bill Congress passed last week designed to deal with the financial and credit crisis.
Recommended For You
The amount available for 28- and 84-day cash loans to banks will also be increased.
The funds available for those loans will be increased to $150 billion each, for the auction period that starts on Monday. The auctions for November will also have $150 billion for the 28- and 84-day cash loans.
Bud Conrad, the chief economist of the economic consulting firm Casey Research, said increasing the amount of loan money is a risky proposition.
"The Fed does not have the entries on the balance sheet to do that. So they are now offering interest on the deposits. That is so they can find the money to fund these big liquidity injections. That turns the Fed into a big bank, taking in deposits and making big loans," he said. "The Fed now makes loans to banks with their bad debt as collateral."
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
