MONETARY POLICIES
spoke at the November 2013 IMF
conference before Larry
Summers, suggested several possibilities; and one was to broaden access to the central bank, allowing anyone to have an ATM at the Fed.
Rajiv Sethi, Barnard/Columbia Professor of Economics, expanded on this idea in a blog titled “The Payments System and M on e t ar y Transmission.” He suggested making the F e d e r a l Reserve the repository for all deposit b a n k ing . This would make deposit in su r a n c e unn e c es sa r y ; it would eliminate the need to impose higher capital requi rement s ; and it would allow the Fed to implement monetary
policy its profits by targeting
debtor rather than creditor balance sheets.
Instead of returning to the Treasury,
the
Fed could do a helicopter drop directly into consumer bank accounts, stimulating demand in the consumer economy.
John Lounsbury expanded further on these ideas. He wrote in Econintersect that they would open a pathway for investment banking and depository banking to be separated from each other, analogous to that under Glass- Steagall. Banks would no longer be too big to fail, since they could fail without destroying
FX
EARLIER CENTRAL BANK VENTURES INTO COMMERCIAL
LENDING
If the Fed is to fulfill its mandate, it clearly needs more tools;
and that means amending the Act
the general payment system of the economy. Lounsbury said the central bank could operate as a true public bank and repository for all federal banking transactions, and it could operate
in the mode of
a postal savings system for the general populace.
13(b) banks
That sounds like a radical departure today, but the Fed has ventured into commercial banking before. In 1934, Section 13(b) was added to the Federal Reserve Act, authorizing the Fed to “make credit available for the purpose of supplying working capital to established industrial and c o mme r cia l bu si nes ses . ” This long- fo rg ot t e n section was implement e d and remained in effect for 24 years. In a 2002 article on the Mi nnea p o l is Fed’s website called “Lender of More Than Last Resort,” David Fettig noted that
allowed Federal Reserve to make loans directly to
any established businesses in their districts, and to share in loans with private lending institutions if the latter assumed 20 percent of
the risk. No limitation was
placed on the amount of a single loan.
FX TRADER MAGAZINE January - March 2014 21
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