Must the Federal Reserve restrict entry and innovation to ensure financial stability?



Event Materials

PowerPoint (Bert Ely)

PowerPoint (Bill Nelson)

PowerPoint (Jerry Dwyer)

Event Summary

On Monday morning, AEI’s Paul H. Kupiec hosted an event to discuss access to Federal Reserve services¬¬ — in particular, interest rates on deposits. The first panel focused on access to Fed services and the Fed’s proposal to pay different interest rates. Bert Ely of Ely & Co. discussed why the Fed pays interest on excess reserves (IOER) and argued that narrow banking is essentially regulatory arbitrage. Bill Nelson of the Bank Policy Institute detailed “bad and good reasons why the Fed should not pay IOER to narrow banks.” Andrew Levin of Dartmouth College discussed the importance of transparency and accountability in central banking, calling the Fed’s record on these attributes “atrocious.”

The second panel focused on the financial stability implications of allowing new, limited-purpose banks access to Fed services. Jerry Dwyer of Clemson University and George Selgin of Cato Institute weighed arguments for the effects of narrowing banking on monetary policy and financial stability. Jamie McAndrews of The Narrow Bank (TNB) shared that TNB seeks to reduce the dispersion of short-term interest rates and argued that allowing TNB entry would not disintermediate other banks.

— Yisehak Abraham

 Event Description

When the Fed undertook a series of quantitative easing operations to control interest rates and lift the economy out of the Great Recession, it began paying banks interest on bank reserves. As the Fed raised the interest rate paid on reserves, new specialized banks formed to capture that interest. The Fed has resisted opening accounts for these new banks, triggering legal action. To avoid paying these new institutions, the Fed has proposed rule changes that will allow it to pay banks different interest rates, including zero interest to banks the Fed deems to be a risk to the system.

Should the Fed be allowed to discriminate to prevent entry and innovation? Join AEI and a panel of experts for a discussion on these issues.


9:15 AM

9:30 AM
Paul H. Kupiec, AEI

9:35 AM
Panel I: Should the Fed’s interest rate on excess reserves (IOER) policy discriminate or provide equal bank access?

Bert Ely, Ely & Co.
Andrew Levin, Dartmouth College
Bill Nelson, Bank Policy Institute

Oliver Ireland, Morrison & Foerster

10:35 AM

10:45 AM
Panel II: Will equal access to IOER payments create financial instability?

Jerry Dwyer, Clemson University
Jamie McAndrews, The Narrow Bank
George Selgin, Cato Institute

Paul H. Kupiec, AEI

11:45 AM

12:00 PM

Event Contact Information

For more information, please contact Yisehak Abraham at [email protected], 202.862.5933.

Media Contact Information

For media inquiries, please contact [email protected], 202.862.5829

Speaker Biographies

Jerry Dwyer is a professor and BB&T Scholar at Clemson University. He also is an adjunct scholar at the Cato Institute and a research associate at the Centre for Applied Macroeconomic Analysis at Australian National University. He was director of the Center for Financial Innovation and Stability, vice president at the Federal Reserve Bank of Atlanta from 1997 to 2012, and a professor of economics at Clemson from 1989 to 1999. Dr. Dwyer’s research has appeared in leading economics and finance journals, books, and publications by the Federal Reserve Banks of Atlanta and St. Louis. He serves on the editorial boards of the Journal of Financial Stability, Economic Inquiry, and Finance Research Letters. He is a past president and member of the executive committee of The Association of Private Enterprise Education. He also was a founding member of The Society for Nonlinear Dynamics and Econometrics, an organization for which he served as president and treasurer and which honored him by creating the Gerald P. Dwyer Prize in Financial Econometrics.

Bert Ely is an adjunct scholar at the Cato Institute and a principal of Ely & Company Inc., where he monitors conditions in the banking and thrift industries, monetary policy, the payments system, and the growing federalization of credit risk. He is an expert on monetary policy, the regulation of banking and financial services, and deposit insurance. Previously, he served as chief financial officer of a public company; a management consultant with Touche, Ross & Co.; and an auditor with Ernst & Ernst. He has published articles and papers on a broad range of financial services topics and is frequently cited in the popular press, including in The New York Times, The Wall Street Journal, American Banker, and Bloomberg Businessweek. Mr. Ely has given expert testimony before Congress and in litigation proceedings on a number of banking issues, including regulatory negligence and deposit insurance reform. In the 1990s, he developed and helped draft legislation to enact the cross-guarantee concept for privatizing banking regulation and deposit insurance.

Oliver Ireland is a partner at Morrison & Foerster LLP. His practice focuses on retail financial services and bank regulatory issues, including consumer protection regulations and Consumer Financial Protection Bureau powers and initiatives, and all types of payment transactions, including compliance with National Automated Clearing House Association rules. Mr. Ireland’s practice also includes regulatory issues applicable to bank and thrift holding companies and to national and state charter banks, federal and state chartered thrifts, and federal and state chartered credit unions, as well as other financial regulatory issues, including margin lending. Mr. Ireland previously served as associate general counsel for the Federal Reserve Board.

Paul H. Kupiec is a resident scholar at AEI, where he studies the management and regulation of banks and financial institutions markets, including issues of systemic risk and the impact of financial regulations on the US economy. Before joining AEI, Dr. Kupiec was director of the Center for Financial Research at the Federal Deposit Insurance Corporation (FDIC) and served as chairman of the Research Task Force at the Basel Committee on Banking Supervision. Before joining the FDIC, he held positions at the International Monetary Fund, Freddie Mac, J. P. Morgan, and the Board of Governors of the Federal Reserve System. Dr. Kupiec has served on the editorial boards of the Journal of Financial Services Research, The Journal of Risk, and the Journal of Investment Management. He was a member of the Shadow Financial Regulatory Committee.

Andrew Levin is a professor of economics at Dartmouth College. His research on monetary economics has been highly influential, with a citation count that ranks among the top 200 economists worldwide. Dr. Levin was an economist at the Federal Reserve Board for two decades, including two years as a special adviser to the board on monetary policy strategy and communications. He subsequently served as an adviser at the International Monetary Fund (IMF) and is now a regular visiting scholar at the IMF. He has also served as a consultant to the European Central Bank, an external adviser to the Bank of Korea, and a visiting scholar at the Bank of Canada, Bank of Japan, and Dutch National Bank, and he has provided technical assistance to the national banks of Albania, Argentina, Ghana, Macedonia, and Ukraine. Dr. Levin received a Ph.D. in economics from Stanford University in 1989.

James McAndrews is an economist specializing in money and banking. He is the CEO and chairman of the board of TNB USA Inc., a Connecticut-chartered bank whose objective is to provide high-yielding safe deposits to institutional investors; it is organized as a narrow bank. Previously he was executive vice president and head of the Research and Statistics Group at the Federal Reserve Bank of New York from 2010 to 2016. He served on the Bank’s Management Committee and participated in leadership development programs. Dr. McAndrews was a member of the steering committee for the Federal Reserve System’s Comprehensive Liquidity Analysis and Review from its founding in 2011 to 2016, and he served as associate economist to the Federal Open Market Committee in 2012. He holds both a bachelor’s and a doctorate degree in economics from the University of Iowa.

Bill Nelson is an executive vice president and chief economist at the Bank Policy Institute. Previously, he served as executive managing director, chief economist, and head of research at the Clearing House Association and chief economist of the Clearing House Payments Company. He contributed to and oversaw research and analysis to support the advocacy of the association on behalf of its owner banks. Before joining the Clearing House in 2016, Dr. Nelson was a deputy director of the Division of Monetary Affairs at the Federal Reserve Board. He joined the Federal Reserve Board in 1993 as an economist in the banking section of Monetary Affairs. In 2004, he was the founding chief of the new Monetary and Financial Stability section of Monetary Affairs. Dr. Nelson has published research on a wide range of topics including monetary policy rules, monetary policy communications, and the intersection of monetary policy, lender of last resort policy, financial stability, and bank supervision and regulation. He earned a Ph.D., an M.S., and an M.A. in economics from Yale University and a B.A. from the University of Virginia.

George Selgin is a senior fellow and director of the Center for Monetary and Financial Alternatives at the Cato Institute and professor emeritus of economics at the University of Georgia. His research covers a broad range of topics in the field of monetary economics, including monetary history, macroeconomic theory, and the history of monetary thought. He is one of the founders, along with Kevin Dowd and Lawrence H. White, of the Modern Free Banking School. He has written for numerous scholarly journals, including the British Numismatic Journal, The Economic Journal, The Economic History Review, the Journal of Economic Literature, and the Journal of Money, Credit and Banking, and for popular outlets such as The Christian Science Monitor, Financial Times, and The Wall Street Journal. Dr. Selgin retired from the University of Georgia to join Cato in September 2014. He has also taught at George Mason University, the University of Hong Kong, and West Virginia University. He holds a B.A. in economics and zoology from Drew University and a Ph.D. in economics from New York University.

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