Is the Fed Going to Pay Higher Interest Rates?

The banks do have some monopoly power, I think there's some epiply evidence of that. So they don't pass on as much of their interest on reserve earnings as they might. The Fed could be a healthy influence in that regard. My fear though is that if it pays the full amount of interest on reserves on retail balances, instead of letting the banks administer and pay interest after deducting expenses and what have you, then you could see some substantial disintermediation of the banking system. That's the kind of competition with bank deposits I worry most about. And once again, you never know when central banks will come around to accepting their ideas.

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