Federal Reserve Governor Milan: It cannot be cancelled now that the Federal Reserve pays interest on reserves

Stephen Millan, a Federal Reserve governor, has said it is unrealistic to consider stopping the Fed from paying interest on reserves to commercial lenders. "I think with the current monetary policy implementation framework and the banking supervision system, where we sort of force banks to hold reserves, you can't really eliminate interest on reserve balances," Millan said. Some Republican lawmakers, including Florida senator Rick Scott, have supported legislation to stop the Fed paying interest on reserves, and Mr. Millan said that "if you want to think about reducing" spending on reserve balances, that's "the downstream part of the problem with the regulatory framework for banks." "We first have to think about how to improve the regulatory framework for banks so that [the Fed's] balance sheet can be smaller," he said. "Addressing the interest rate on reserve balances before addressing the regulatory system is completely putting the cart before the horse," he said, adding that lowering interest payments "is definitely something we are thinking about and discussing over and over again".