Bernanke: The Federal Reserve believes it is possible to eliminate minimum reserve requirements

www.federalreserve.gov/

Testimony

Chairman Ben S. Bernanke 

 

Federal Reserve's exit strategy

 

Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.

February 10, 2010

 

Statement as prepared for delivery. The hearing was postponed due to inclement weather.

......
9. The authority to pay interest on reserves is likely to be an important component of the future operating framework for monetary policy. For example, one approach is for the Federal Reserve to bracket its target for the federal funds rate with the discount rate above and the interest rate on excess reserves below. Under this so-called corridor system, the ability of banks to borrow at the discount rate would tend to limit upward spikes in the federal funds rate, and the ability of banks to earn interest at the excess reserves rate would tend to contain downward movements. Other approaches are also possible. Given the very high level of reserve balances currently in the banking system, the Federal Reserve has ample time to consider the best long-run framework for policy implementation. The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system