Fed chairman wants OK to start paying interest on bank reserves

Federal Reserve Chairman Ben S. Bernanke, seeking ways to stabilize money markets, will ask Congress for authority to pay interest on commercial-bank reserves this year, a person familiar with the discussions said.

The central bank isn't authorized by Congress to begin making such payments until 2011. Allowing interest on bank reserves may enable the Fed to pump more funds into the banking system without pushing its main policy rate lower, in effect separating action to boost liquidity from monetary policy.

"It would have the effect of putting a floor under the federal funds rate," said Walker Todd, a research fellow at the American Institute for Economic Research in Great Barrington, Mass.

Bernanke has expanded the Fed's tools during the credit crisis, rolling out three new facilities aimed at getting funds to the financial system more effectively.

The Fed's Board of Governors discussed paying interest on reserves in a closed session April 30. The Federal Open Market Committee, which includes governors and presidents of the 12 district banks, cut the benchmark federal funds rate a quarter of a point to 2% the same day.

Banks are required to hold a proportion of customers' deposits in an account at the Fed. In addition, they hold reserves in excess of their required balances to meet payments.



SEC, Fed plan to share more data

The Securities and Exchange Commission plans to share more information with the Federal Reserve about the health of investment banks after a run on Bear Stearns Cos. put the firm on the brink of filing for bankruptcy.

The SEC and the Fed are preparing a "memorandum of understanding" for communicating with each other, Erik Sirri, head of the SEC's trading and markets division, said in Senate testimony Wednesday.

The effort reflects the fact that the central bank is lending money to investment banks for the first time since the Great Depression, he said.

The memo "would provide an agreed-upon scope and mechanism for information sharing," Sirri told members of the Senate subcommittee on securities, insurance and investment. The goal is "making it more useful and more clear," he said.

Congress is examining the SEC's role as the primary regulator for investment banks after the Fed helped rescue Bear Stearns in March by agreeing to lend it money and then orchestrating a sale to JPMorgan Chase & Co.

The SEC and Fed now share oversight of securities firms.

Sen. Jack Reed (D-R.I.), who heads the Senate panel, said the SEC's monitoring didn't "adequately measure the risk of new products," such as securitized loans that investment banks held and were sold to investors.



U.S. art buyers still bidding big

American art collectors defied a sinking U.S. economy Wednesday, making up 67% of buyers at a Sotheby's New York sale that saw records smashed for work by artists Edvard Munch and Fernand Leger.

American buyers at the Sotheby's Impressionist and modern art auction were double the number of U.S. buyers who were successful at Christie's rival sale Tuesday.

"It shows any attempt to draw a facile relationship between what's happening in the financial markets and what's happening in the art auction market is irrelevant," said Simon Shaw, head of Sotheby's Impressionist and modern art department.

But the state of the U.S. economy had certainly influenced the type of sale Sotheby's put together, Shaw said.

"I would be lying if I said we didn't feel a responsibility to produce a small, tightly edited, carefully curated sale. We certainly did," he said. "We didn't feel that this was a moment to be having long flabby sales with overpriced material."

The sale made a total of $233.3 million, meeting Sotheby's estimates, with an average lot value of $5.7 million, up from $3.5 million six months ago, the auction house said.

From Times Wire Services