“This is Why the Fed is Paying Interest to Big Banks.” -Bloomberg news

“Federal Reserve Chair Janet Yellen ran into a bipartisan buzzsaw today over why the Federal Reserve is paying interest to banks on the trillions of dollars in reserves that they hold at the Fed. She tried repeatedly to supply the central bank’s reasoning but didn’t seem to make a dent.”Please, please explain,” Representative Maxine Waters (D-Calif.), the ranking Democrat on the House Financial Services Committee, said at one point. Committee Chairman Jeb Hensarling (R-Texas) said the Fed’s interest-paying policy “can distort resource allocation and constrain economic opportunity.”In the heat of a presidential campaign in which candidates from both parties are going heavy on the big banks, the Fed policy of paying them interest on their so-called excess reserves was bound to come in for extra scrutiny. Last year, Waters said, the Fed paid about $7 billion in interest to banks, including more than $100 million to Goldman Sachs and more than $900 million to JPMorgan Chase. And since the Federal Reserve’s board of governors voted in December to double the interest rate on those reserves to half a percent from a quarter percent, the payments will be even higher in 2016.”

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