October 8, 1998
The Administration opposes House passage of H.R. 4364 which would permit
the Federal Reserve to pay interest on reserves maintained at Federal
OMB estimates that paying interest on reserves would cost taxpayers as much as $800 million over 5 years. While this would create real additional Federal government outlays to banks, the bill would pay for the spending with an artificial receipt. The bill purports to pay for the spending by requiring the Federal Reserve to transfer some earnings to the Treasury. However, there are no new receipts to the taxpayer from this transfer. The Federal Reserve is part of the Federal government. Its earnings are already owned by the government, whether or not they are later transferred to the Treasury. The transfer of the earnings therefore brings no new receipts to the government.