House Approves Bill To Pay Interest OnFed's Reserves

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WASHINGTON - (05/25/05) -- The House overwhelmingly approved abill last night that will require the Federal Reserve to payinterest on so-called sterile reserves, the reserves credit unionsand banks are required to deposit with the fed to qualify for anemergency line of credit--but the prospects are dim for the billwhich has been introduced in each of the last fivecongressess--since the advent of the bankruptcy reform bill. Thebill would also allow banks to pay interest on business checkingaccounts, something credit unions have long been allowed to do. Butthe sterile reserves, which could mean millions of dollars ofinterest on credit unions' accounts with the Fed, has grown inimportance to credit unions since hundreds of credit unionsestablished accounts with the Fed in preparation for a potentialliquidity squeeze before Y2K. Those accounts qualify credit unionsfor access to the Fed's discount window for emergencyloans.

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