Senate Banking Committee Chairman Tim Scott (R-S.C.) said a proposal to prevent the Federal Reserve from paying interest to banks “is not a decision to be rushed” and must follow proper parliamentary procedure, Bloomberg Law reported.
Senate Commerce Committee Chairman Ted Cruz (R-Texas) has proposed eliminating the Fed’s authority to pay interest to help pay for a series of tax cuts in the budget package currently under consideration in Congress. Cruz said the move could potentially save the government more than $1 trillion.
However, in a statement to Bloomberg Law, Scott said the decision is not one to be made in a hurry.
“While the desire to return to pre-crisis monetary policy operating procedures is understandable, any legislative change to the Federal Reserve’s framework must follow regular order,” Scott said. “This is not a decision to be rushed – it must be carefully considered and openly debated.”
In a recent ABA DataBank column, Jeff Huther, vice president for banking and economic policy at the American Bankers Association, wrote that the proposal would undermine the economy and financial stability while doing nothing to help the federal budget.
“Proposals to discontinue interest on reserves would penalize the U.S. banking system by imposing an implicit tax on reserves,” Huther wrote. “This implicit tax in turn would negatively impact U.S. banks’ ability to supply credit to their customers — Main Street households and businesses — without any short-term budgetary gains.”
