Bill OK'd To Pay Interest On Sterile Reserves

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The House overwhelmingly approved a bill last week that will require the Federal Reserve to pay interest on so-called sterile reserves, the reserves credit unions and banks are required to deposit with the Fed to qualify for an emergency line of credit. But the prospects are dim for the bill which has been introduced in each of the last five congressess-since the advent of the bankruptcy reform bill. The bill would also allow banks to pay interest on business checking accounts, something credit unions have long been allowed to do.

But the sterile reserves, which could mean millions of dollars of interest on credit unions' accounts with the Fed, has grown in importance to credit unions since hundreds of credit unions established accounts with the Fed in preparation for a potential liquidity squeeze before Y2K. Those accounts qualify credit unions for access to the Fed's discount window for emergency loans.

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