George Selgin: Floor system has increased bank dependence on Fed in liquidity shortages

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Anastasiia Chabaniuk

05.04.2026

George Selgin: Floor system has increased bank dependence on Fed in liquidity shortages — Floor system boosts Fed dependence

A move to a floor system by the Federal Reserve has undermined the interbank fed funds market, according to George Selgin. Previously a primary source of last-minute loans for banks, this market's decline has made institutions far more dependent on the Federal Reserve during times of liquidity stress.

Selgin notes that, despite banks holding trillions of dollars in reserves, liquidity shortages still happen occasionally.

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Selgin has previously highlighted ongoing resistance among economists to nominal GDP targeting, describing debates within 20th-century economic thought in a recent article. He also commented on differences between Hayek’s proposals and free banking, pointing to real-world examples where free banking was implemented in another analysis. His recent comments arise as policymakers revisit the structure of U.S. banking reserves.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.

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