Rep. Henry Reuss (D-Wis.) fired another broadside at the nation's banks yesterday in the continuing battle over how best to solve the Federal Reserve's declining membership problem.
The House Banking Committee chairman said the banks' call for lower, interest-earning reserve levels and continuation of the Fed's voluntary reserve policy "flies in the face of accepted practice in other industrialized countries."
Reuss released a summary prepared by the Federal Reserve showing that Canada, France, Germany, Italy, Japan, Switzerland and the United Kingdom all require commercial banks to hold reserves with the central bank. Canada, Italy and the U.K. pay some interest on these reserves; the others do not.
"Only the U.S. lets a bank opt out of the central bank system," Reuss said, "leaving the burden and cost of holding reserves entirely to banks who either need to be in the Fed for their own purposes or are simply "good guys" about sharing the reserve burden."
The major banking organizations have declined to endorse a bill introduced by Reuss that would require all large banks to hold reserves at the Fed. Instead, the American Bankers Association has proposed a completely voluntary system and payment of interest to the banks for reserves now held in noninterest bearing accounts by the nation's central bank.
Earlier in the week, Reuss announced he was postponing indefinitely further consideration of any Fed membership reform legislation, citing "complete opposition" by the bankers.