Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/120803
Authors: 
Garratt, Rod
Martin, Antoine
McAndrews, James Joseph
Nosal, Ed
Year of Publication: 
2015
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 730
Abstract: 
This paper describes segregated balance accounts (SBAs), a concept for a new type of account that could provide increased competition for deposits, reduce system-wide balance sheet costs, and improve the transmission of monetary policy by facilitating greater pass-through of interest on excess reserves (IOER). SBAs are designed to remove credit risk by creating narrow accounts that could allow any bank to compete for money market funds. Because of increased competition, the rates paid on borrowings secured by SBAs, along with other money market rates, would likely be pushed up closer to the IOER rate and would be more tightly linked to that rate. SBAs could promote a more efficient allocation of reserves within the banking sector by shifting reserves from banks with high balance sheet costs to banks with low balance sheet costs. SBAs would not require setting an additional administered rate; IOER would be paid on the balances held in an SBA and the rate paid on the loan secured by the balances in the SBA would be competitively determined. We discuss a number of potential risks that SBAs could pose as well as further steps that would be required before SBAs could be implemented.
Subjects: 
central bank
interest rate
JEL: 
E40
E42
E50
E58
Document Type: 
Working Paper

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