Monday, July 28, 2014

House markup of Regulation D (reserve requirements) Study Act set for tomorrow

The House Financial Services Committee will begin a markup of the Regulation D Study Act (H.R. 3240) Tuesday. Full disclosure, this bill is supported by my employer. 

If the bill passes, (imagine, something remotely sane coming out of the House!)  it would require the GAO, in consultation with credit unions and community banks, to study the Federal Reserve's Regulation D minimum reserve requirements.
The bill calls for the study to report: 

  • A review of how the Fed has used reserve requirements to conduct U.S. monetary policy;

  • The impact of the maintenance of reserves on depository institutions;

  • The impact upon consumers in managing their accounts; and

  • Alternatives available to the Federal Reserve Board to maintain reserves to effect monetary policy
It will be interesting to see what might come of this. It would be nice to have the Fed admit openly to what is has already implicitly admitted through establishment of the new Excess Balance Accounts (IOER) and Term Deposit Facility- namely, that reserve requirements are an old vestige of the gold standard era and should be eliminated. The current structure of Reg D prevents consumers from making savings account withdrawals more than 6 times a month, which in the era of "soft currency" is no longer a necessary protection to a bank and annoying/costly for consumers. If this happens, maybe we can finally catch up to what Canada, the UK, New Zealand, Australia and Sweden have already acknowledged

The markup is scheduled to begin at 10 a.m. (ET) Tuesday in the Rayburn House Office Building, and I'll try to attend. 

1 comment:

STF said...

Of course, even if we don't change Reg D it does not and has not constrained bank lending. It's a tax on banks, that's it. The Fed must set an interest rate target--it cannot directly set a reserve target. That means it accommodates the demand for reserves at its target as banks need more RR.