Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

Thank you, Mr. Chairman. This is a proposal for study. The timeline seems fine to me. The study period is pretty important in this case because it is not clear to me which option is best, and so I think maybe we should keep more of the options on the table. One question that I have is, To what extent are current reserve requirements actually binding for depository institutions? There is a past study by the St. Louis staff—Dick Anderson and Bob Rasche—suggesting that, by and large, existing reserve requirements are not binding. To me that calls into question whether objective 1 for this study group is really appropriate. Dead weight losses make sense to me only if there is a binding reserve requirement. In that regard, I’d like to endorse President Yellen’s comment, which I thought was right on target, about whether you are going to make up for lost revenue from somewhere else and how distortionary that would be. There is a bit of political risk here that, if this starts to get painted as a handout to banks, maybe it wouldn’t serve us well.

I would like to see more emphasis on option 3, which based on the discussion seems to be not too bad a system. That is the Canadian system. That is a tested system in an economy that is not too different from our own—certainly, an economy that is closely integrated with this one. The corridor would be narrow. There might be more volatility within that corridor, but you still seem to get pretty good results. I know they have a small number of banks, but it seems to me with today’s technology you might be able to get a good read even for a large economy. I would like to see it kept in the mix here. They have had lots of success and very low administrative burden, if that is what you are worried about. I am perhaps not so familiar with options 2 and 5, which are the favored options in this discussion. But I am concerned about the language of voluntary balance targets, which seem to be maybe not that voluntary. It seems to me to create a risk that the systems are really not as market-oriented as I would like to see or that they could be manipulated by market participants, particularly in a time of stress. Those are some of the concerns I had about this.

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