Key Senator Opposes Plan to Halt Fed Interest Payments to Banks

(Bloomberg) — Senate Banking Committee Chairman Tim Scott said he opposes swift action on a proposal from Texas’ Ted Cruz that would bar the Federal Reserve from paying interest on reserves to banks to help pay for President Donald Trump’s tax and spending package.

“While the desire to return to pre-crisis monetary policy operating procedures is understandable, any legislative change to the Federal Reserve’s framework must follow regular order,” Scott said Thursday in a statement. “This is not a decision to be rushed – it must be carefully considered and openly debated.”

Scott, a South Carolina Republican, said the idea should go through the Senate’s typically slow regular committee process rather than be including in the fast-moving tax bill. 

Without the committee chair’s backing, the idea is unlikely to make it into the tax legislation. 

Cruz has pitched the idea to Trump and Senate Republicans as a way to save $1.1 trillion over a decade, arguing much of the money goes to foreign banks. He’s backed by fellow conservatives including holdout Senators Rick Scott and Ron Johnson, as well as prominent Texas Representative Chip Roy.

Other Republican senators, meanwhile, expressed their sympathy with the proposal, if not outright support.

Missouri’s Josh Hawley said opposition to the idea from Wall Street banks made it more appealing to him.

Cruz “said that all the big banks called him as soon as he presented it and yelled at him, and so I thought, oh, that sounds even better,” Hawley said. 

Still, he added, “I don’t know enough to know is it really good policy, but it sounds like it. Write me down as, like, very open to it.”

Mike Rounds, a senior Republican senator on the banking committee, said he was skeptical of the proposal as interest payments were part of the Fed’s monetary policy toolkit and the idea would need further vetting.

More stories like this are available on bloomberg.com