The European Central Bank and The Federal Reserve
The Federal Reserve is planning to ask Congress for authority - starting this year - to pay interest on commercial-bank reserves, in an effort to gain better control over interest rates and more leverage to battle the credit crunch.
The ECB has done so from day one. Time will if it will work, I am skeptical.
The big difference between the Fed and the ECB is that the ECB is the ultimate top credit within Euroland something that the Fed is not and in a flight to quality the ECB minimum deposit rate acts as a floor for interest rates, something that may not work for the Fed. I have mentionned somewhere that in Euroland it is not possible to have negative repos rates or government t-bills trading below the minimum deposit rate.
The European Central Bank and The Federal Reserve: paper by Stephen G. Cecchetti and Róisín O’Sullivan
Fed seeks approval to pay interest on reserves: report
May 8th, 2008 at 10:25 am
[...] The Fed wants to pay interest on commercial bank reserves. (Alea) [...]