Ensuring that businesses can earn interest on their checking accounts, while preserving safe and sound operation of community banks, has been one of my highest priorities. It's time to adapt this Depression-era law to the realities of the 21st Century. On the issue of interest on reserves, the Federal Reserve requires its member banks to maintain cash reserves to cover potential withdrawals and to help the Fed manage the nation's monetary supply. The payment of interest on banking reserves would provide incentives for financial institutions to increase their reserve balances voluntarily. In recent years, these balances have been dropping, holding potential consequences for the Fed's ability to conduct monetary policy.
Individual consumers pay interest when they take out a car loan, home loan, or student loan.
Our government has always taken this privilege with other people's money, but the free ride should end. In his recent appearance before the House Financial Services Committee, Federal Reserve Chairman Alan Greenspan expressed support for legislation to direct the payment of interest on bank reserves and to allow interest on business checking deposits. Click Here to return to Congressman Pombo's finance page.