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Empresas y finanzas

Fed alters formula for interest on excess balances


    WASHINGTON (Reuters) - The Federal Reserve said on Wednesday it was altering its formula for paying interest on excess balances that banks keep with it in order to have less effect on overall interest rates.

    It said the new formula sets the rate on excess balances at the lowest federal funds target rate minus 35 basis points.

    The previous formula set it at minus 75 basis points.

    "The board judged that a narrower spread between the target funds rate and the rate on excess balances at this time would help foster trading in the funds market at rates closer to the target rate," the Fed said in a brief announcement.

    The Fed said the new formula for paying interest on excess balances -- an authority the Fed received as part of the Congressionally approved $700-billion bailout program for financial firms -- will be effective from Thursday, October 23.

    Paying interest on excess balances gives the U.S. central bank a new tool for expanding its balance sheet as needed to provide liquidity without pushing down overall interest rates.

    The Fed said it will continue to evaluate the rate it pays on excess balances "in light of evolving market conditions" and will make whatever adjustments it decides are needed.

    (Reporting by Glenn Somerville; Editing by James Dalgleish)