A little over a year ago, I argued that the Federal Reserve should consider charging banks for the privilege of holding their reserves. The reasoning for this is straightforward: charging interest on banks (instead of paying interest, as the Fed now does) will encourage banks to come up with more profitable uses for their money, such as lending to firms and individuals.
It seems to have taken a while–and some distance–for that memo to get through. In evidence before a the House of Commons Treasury Committee earlier this week, Bank of England Deputy Governor Paul Tucker raised the issue, although stressing that action on this possibility was not imminent.
According to the Financial Times, “…the deputy governor cautioned that this was a “radical idea” that was “not something anyone should clutch on to as the answer to the universe…This would be an extraordinary thing to do and it needs to be thought through very carefully.”
I am glad to see that it is under consideration.