In a joint letter to Senate leaders, the American Bankers Association and 52 state bankers associations said they are deeply concerned about a proposed amendment to a must-pass defense spending bill that would eliminate the payment of interest on bank reserves held at the Federal Reserve.
Sen. Rand Paul (R-Ky.) proposed the amendment to the National Defense Authorization Act, which he said could save the government more than $1 trillion over the next decade. But in their letter, the associations said that eliminating interest on reserves would not reduce federal spending. Rather, “it would disrupt the important work underway to bring down interest rates and disproportionately harm small banks, undermining their ability to lend into their communities.”
“The complex market operations that underpin our financial system and economy rely on a close partnership between the Federal Reserve, the U.S. Treasury, and our nation’s nearly 4,500 banks,” they said. “Paying interest on the balances banks hold in their reserve accounts is not a profit center for financial institutions, it is simply one of the many signals that glue our critical financial ecosystem together..”
The associations added that Paul’s proposal would be best addressed as a separate bill and not as an amendment to an unrelated defense spending bill. “(T)hese important issues that implicate monetary policy and bank lending are better debated and considered through the regular order committee process, and we would be happy to participate in such a process to share the perspective of our collective membership.”
