, Columnist
Why Is This Supersafe Bank Scaring the Fed?
TNB USA, “The Narrow Bank,” has an extremely narrow business model that’s spooking the Federal Reserve.
The Federal Reserve is, among other things, a bank for banks: They keep deposits there and earn interest at a rate currently set at 1.95 percent. Big institutional investors that aren’t banks can also deposit money at the Fed, but they use a different program with a lower interest rate: 1.75 percent.
This suggests an obvious trade. An institution could deposit money with a bank, which would then turn around and deposit it with the Fed. The Fed pays the bank 1.95 percent interest, the bank collects a fee for its trouble, and the institution gets the balance—say, 1.9 percent.