Floored! How a misguided Federal Reserve experiment deepened and prolonged the Great Recession

Share Mark as favorite


Event Summary

On Monday evening, AEI hosted Cato Institute’s George Selgin to discuss his latest book, “Floored! How a Misguided Fed Experiment Deepened and Prolonged the Great Recession (Cato Institute, October 2018), which examines the postcrisis monetary policies of the Federal Reserve¬.

In his presentation, Dr. Selgin discussed his concerns regarding the payment of interest on bank reserve balances at the Fed. He emphasized how the Fed managed to circumvent the Financial Services Regulatory Relief Act of 2006 by offering interest at a rate higher than the general level of short-term interest rates and how foreign banks have benefited more from holding excess reserves than domestic banks.

Following Dr. Selgin’s presentation, Bill Nelson from the Bank Policy Institute and David Beckworth from the Mercatus Center offered their remarks on Dr. Selgin’s book. Dr. Nelson discussed the effectiveness of the floor system of monetary policy. Mr. Beckworth suggested that we are closer to a corridor system than a floor system.

— Yisehak Abraham

Event Description

Before 2008, banks earned no interest on their Federal Reserve balances. In the precrisis operating system, the Fed used open market operations to control the supply of bank reserves and the federal funds rate, which indirectly determined the cost and supply of bank credit available to the public. The Fed’s emergency actions during the financial crisis included paying interest on bank reserve balances. This seemingly innocuous change in operating policy drastically altered the way monetary policy affects the availability of bank credit. In his new book, George Selgin argues that because the Fed elected to pay above market rates on bank reserves, the Fed reduced the veracity of monetary policy and prolonged the Great Recession.

Join AEI as Dr. Selgin discusses the issues that arise when the Fed pays banks above market rates on their reserve balances, followed by commentary from an expert panel including David Beckworth, Paul Kupiec, and Bill Nelson.

Join the conversation on social media by following @AEI and @AEIecon on Twitter and Facebook.



4:45 PM

5:00 PM
Paul H. Kupiec, AEI

5:10 PM
George Selgin, Cato Institute

5:40 PM
Book reviews

David Beckworth, Mercatus Center
Bill Nelson, Bank Policy Institute

6:00 PM

6:15 PM
Adjournment to wine and cheese reception

Event Contact Information

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

Media Contact Information

For media inquiries or to register a camera crew, please contact [email protected], 202.862.5829

Speaker Biographies

David Beckworth is a senior research fellow at the Mercatus Center at George Mason University and a former international economist at the US Department of the Treasury. He is the author of “Boom and Bust Banking: The Causes and Cures of the Great Recession” (Independent Institute, 2012) and formerly taught at Western Kentucky University. His research focuses on monetary policy, and his work has been cited by The Wall Street Journal, Financial Times, The New York Times, Bloomberg Businessweek, and The Economist. He has advised congressional staffers on monetary policy and has written for Barron’s, Investor’s Business Daily, The New Republic, The Atlantic, and National Review. Mr. Beckworth also hosts the weekly podcast “Macro Musings.”

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.

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.

Sort By:

Refine Content:



  • Event (3383)

Additional Keywords:

Refine Results

or to save searches.

Refine Content