I should note, however, that to date, despite the sharp decline in required reserve balances, there has not been an increase in the volatility of the funds rate. The Fed has asked the Congress for statutory authority to pay interest on required reserve balances as well as on excess reserves.
Paying interest on required reserve balances would greatly reduce the incentive for banks to conduct sweep programs and would therefore raise the level of transactions deposits and hence reserves. This would diminish the risk that further declines in required reserve balances would increase the volatility of the funds rate.