Fiscal Accountability for Interest on Reserves Act; FAIR Act
Summary
The Fiscal Accountability for Interest on Reserves Act (FAIR Act) proposes to amend the Federal Reserve Act by striking paragraph (12) of Section 19(b), which pertains to earnings on balances held at Federal Reserve Banks. This change would eliminate the Federal Reserve's authority to pay interest on reserves held by banks. The act stipulates that the amendment will take effect 180 days after enactment.
Expected Effects
The primary effect of the FAIR Act would be to eliminate interest payments on reserves held by banks at the Federal Reserve. This could impact bank profitability and potentially influence the Federal Reserve's monetary policy tools. The change aims to increase fiscal accountability related to the Federal Reserve's operations.
Potential Benefits
- Potentially reduces government expenditures by eliminating interest payments to banks.
- Could lead to a more direct relationship between the Federal Reserve and the economy, rather than banks.
- May encourage banks to lend more, stimulating economic activity.
- Could simplify the Federal Reserve's balance sheet and operations.
- May increase public scrutiny of the Federal Reserve's monetary policy decisions.
Most Benefited Areas:
Potential Disadvantages
- Could reduce bank profitability, potentially leading to decreased lending.
- May complicate the Federal Reserve's ability to manage monetary policy effectively.
- Could create instability in the banking system if banks react negatively to the change.
- May lead to unintended consequences in financial markets.
- Potential for legal challenges based on contractual obligations.
Most Disadvantaged Areas:
Constitutional Alignment
The FAIR Act appears to align with the constitutional authority of Congress to regulate the monetary system. Article I, Section 8 grants Congress the power to coin money and regulate the value thereof. This power implicitly includes the ability to modify aspects of the Federal Reserve System. However, the specific impact on contractual obligations with banks could raise questions related to due process, although this is less directly addressed in the Constitution.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).