Fed to bump up interest rate on bank reserves - WKOW 27: Madison, WI Breaking News, Weather and Sports

Fed to bump up interest rate on bank reserves

WASHINGTON (AP) -- The Federal Reserve is raising the interest rate it pays commercial banks on excess reserves, helping the central bank battle the credit crisis.

  The move will encourage banks to keep excess reserves at the Fed because they will be earning higher interest on that money.

  That will give the Fed more control over interest rates and more leverage to battle the credit debacle.

  Under the new formula, which takes effect on Thursday, the Fed will pay banks 1.15 percent on excess reserves.

  The Fed pays banks three-quarters of a percentage point under the old formula.

Powered by Frankly