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The U.S. central bank’s policy of holding interest rates near zero is a subsidy for large banks and redistributes wealth from savers to debtors, said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City.
Banks can borrow at 0.25 percent and buy Treasury bonds that yield 3 percent, keeping the difference.
“It provides them a means to generate earnings and restore capital, but it also reflects a subsidy to their operations,” he said to the House Subcommittee on Domestic Monetary Policy and Technology on Tuesday in Washington.
