Fed weighs cutting interest rates paid to entities set up to take institutional money

The Federal Reserve is considering lowering the interest rates paid on excess balances, if they hold "a very large proportion" of their assets there. Some financial firms recently have sought to establish special state charters for depository institutions with narrowly focused business models that involve taking deposits from institutional investors and investing all or substantially all of the proceeds in balances at Reserve Banks. "These narrowly focused depository institutions (Pass-Through Investment Entities or PTIEs) could theoretically attract a very large quantity of deposits from institutional investors by paying a rate that is nearly identical to the IOER rate," the Fed said.

Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news.