Fed eliminates reserve requirements to nothing?

[Jimmy Higgins]

I was reading another board and saw a claim that the Fed was going to not require banks to have reserves any more to help keep cash flowing. This sounded a bit made up.

So I looked it up.

Reserve RequirementsFor many years, reserve requirements played a central role in the implementation of monetary policy by creating a stable demand for reserves. In January 2019, the FOMC announced its intention to implement monetary policy in an ample reserves regime. Reserve requirements do not play a significant role in this operating framework.
In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.

This is starting to sound a little obvious, but at the same time, technical terms are being used that have specific, if not upfront meanings.

So I went here. And after browsing through it, I know less than when I started.

Time to look elsewhere.

Ah, this seems more digestible.

So my understanding is that banks must have an equal amount of dollars on hand as they do deposits. No reserves means that they don't need extra on hand, but they still need to break even. With the Fed Rate at 0, they can easily get a loan from the Fed to break even. So it sounds a bit loose, but loose might not be bad at this moment, except for one problem.

Who is trying to buy a house right now?

 

[Old Woman in Purple]

Who is trying to buy a house right now?

Our around-the-corner neighbors are trying to SELL their house, so they're obviously hoping SOMEONE is buying....

They had an open house and everything this past weekend.... got a decent turnout, too. (I got mixed feelings about that..... )

 

[Politesse]

I was reading another board and saw a claim that the Fed was going to not require banks to have reserves any more to help keep cash flowing. This sounded a bit made up.

So I looked it up.

Reserve RequirementsFor many years, reserve requirements played a central role in the implementation of monetary policy by creating a stable demand for reserves. In January 2019, the FOMC announced its intention to implement monetary policy in an ample reserves regime. Reserve requirements do not play a significant role in this operating framework.
In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.

This is starting to sound a little obvious, but at the same time, technical terms are being used that have specific, if not upfront meanings.

So I went here. And after browsing through it, I know less than when I started.

Time to look elsewhere.

Ah, this seems more digestible.

So my understanding is that banks must have an equal amount of dollars on hand as they do deposits. No reserves means that they don't need extra on hand, but they still need to break even. With the Fed Rate at 0, they can easily get a loan from the Fed to break even. So it sounds a bit loose, but loose might not be bad at this moment, except for one problem.

Who is trying to buy a house right now?

Well, we were.

 

[laughing dog]

I was reading another board and saw a claim that the Fed was going to not require banks to have reserves any more to help keep cash flowing. This sounded a bit made up.

So I looked it up.

Reserve RequirementsFor many years, reserve requirements played a central role in the implementation of monetary policy by creating a stable demand for reserves. In January 2019, the FOMC announced its intention to implement monetary policy in an ample reserves regime. Reserve requirements do not play a significant role in this operating framework.
In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.

This is starting to sound a little obvious, but at the same time, technical terms are being used that have specific, if not upfront meanings.

So I went here. And after browsing through it, I know less than when I started.

Time to look elsewhere.

Ah, this seems more digestible.

So my understanding is that banks must have an equal amount of dollars on hand as they do deposits. No reserves means that they don't need extra on hand, but they still need to break even. With the Fed Rate at 0, they can easily get a loan from the Fed to break even. So it sounds a bit loose, but loose might not be bad at this moment, except for one problem.

Who is trying to buy a house right now?

Banks in the US have never kept an amount of cash equal to their deposits. If they did, they would have nothing to lend. The reserve requirement in the US was low (5% or less, depending on the total amount of deposits and the type of deposit). Canada has no reserve requirement for their banks.

The Fed has been trying to get banks to lend for a couple of years. The banking system has not been lending out all of its "excess" reserves (reserves in excess of those required). I don't see this action having much operational lending effect, because in order for banks to lend, someone who is credit worthy has to want to borrow. But it is signal to the financial sector that the Fed is ready, able and willing to help in this crisis. It also signals that the Fed thinks the shit will hit the economic fan in 3 to 12 months, because monetary policy actions affect the economy with a lag.

This does help any bank whose required reserves were below the requirement. Now that bank will not have to act to acquire more reserves.

 

[Horatio Parker]

My understanding is that reserves are not lent out. Or were not...

The Fed has also resumed quantitative easing, but they won't call it that. QE floods the system with cash, so reserves are plentiful.

 

[Harry Bosch]

I was reading another board and saw a claim that the Fed was going to not require banks to have reserves any more to help keep cash flowing. This sounded a bit made up.

So I looked it up.

Reserve RequirementsFor many years, reserve requirements played a central role in the implementation of monetary policy by creating a stable demand for reserves. In January 2019, the FOMC announced its intention to implement monetary policy in an ample reserves regime. Reserve requirements do not play a significant role in this operating framework.
In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.

This is starting to sound a little obvious, but at the same time, technical terms are being used that have specific, if not upfront meanings.

So I went here. And after browsing through it, I know less than when I started.

Time to look elsewhere.

Ah, this seems more digestible.

So my understanding is that banks must have an equal amount of dollars on hand as they do deposits. No reserves means that they don't need extra on hand, but they still need to break even. With the Fed Rate at 0, they can easily get a loan from the Fed to break even. So it sounds a bit loose, but loose might not be bad at this moment, except for one problem.

Who is trying to buy a house right now?

Banks in the US have never kept an amount of cash equal to their deposits. If they did, they would have nothing to lend. The reserve requirement in the US was low (5% or less, depending on the total amount of deposits and the type of deposit). Canada has no reserve requirement for their banks.

The Fed has been trying to get banks to lend for a couple of years. The banking system has not been lending out all of its "excess" reserves (reserves in excess of those required). I don't see this action having much operational lending effect, because in order for banks to lend, someone who is credit worthy has to want to borrow. But it is signal to the financial sector that the Fed is ready, able and willing to help in this crisis. It also signals that the Fed thinks the shit will hit the economic fan in 3 to 12 months, because monetary policy actions affect the economy with a lag.

This does help any bank whose required reserves were below the requirement. Now that bank will not have to act to acquire more reserves.

Yes, this post is absolutely correct. Banks lost their ass in 2009/10 and aren't going to take excess risk not matter what the government inducement.

 

[T.G.G. Moogly]

Banks in the US have never kept an amount of cash equal to their deposits. If they did, they would have nothing to lend. The reserve requirement in the US was low (5% or less, depending on the total amount of deposits and the type of deposit). Canada has no reserve requirement for their banks.

The Fed has been trying to get banks to lend for a couple of years. The banking system has not been lending out all of its "excess" reserves (reserves in excess of those required). I don't see this action having much operational lending effect, because in order for banks to lend, someone who is credit worthy has to want to borrow. But it is signal to the financial sector that the Fed is ready, able and willing to help in this crisis. It also signals that the Fed thinks the shit will hit the economic fan in 3 to 12 months, because monetary policy actions affect the economy with a lag.

This does help any bank whose required reserves were below the requirement. Now that bank will not have to act to acquire more reserves.

Yes, this post is absolutely correct. Banks lost their ass in 2009/10 and aren't going to take excess risk not matter what the government inducement.

I wouldn't be so sure that all banks will act so wisely. Some will and some won't, same as in '09/'10.

 

[RVonse]

My understanding is that reserves are not lent out. Or were not...

The Fed has also resumed quantitative easing, but they won't call it that. QE floods the system with cash, so reserves are plentiful.

Another day, another ponzy scheme from the fed.

 

[RVonse]

I was reading another board and saw a claim that the Fed was going to not require banks to have reserves any more to help keep cash flowing. This sounded a bit made up.

So I looked it up.

Reserve RequirementsFor many years, reserve requirements played a central role in the implementation of monetary policy by creating a stable demand for reserves. In January 2019, the FOMC announced its intention to implement monetary policy in an ample reserves regime. Reserve requirements do not play a significant role in this operating framework.
In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.

This is starting to sound a little obvious, but at the same time, technical terms are being used that have specific, if not upfront meanings.

So I went here. And after browsing through it, I know less than when I started.

Time to look elsewhere.

Ah, this seems more digestible.

So my understanding is that banks must have an equal amount of dollars on hand as they do deposits. No reserves means that they don't need extra on hand, but they still need to break even. With the Fed Rate at 0, they can easily get a loan from the Fed to break even. So it sounds a bit loose, but loose might not be bad at this moment, except for one problem.

Who is trying to buy a house right now?

Ive read there is a huge demand with refinancing mortgages. Even if another house is never bought, refinancing and 2nd mortgages provide a huge shot in the arm for the heroin addicts addicted to spending money they really dont have.

 

[laughing dog]

My understanding is that reserves are not lent out. Or were not...

The Fed has also resumed quantitative easing, but they won't call it that. QE floods the system with cash, so reserves are plentiful.

Another day, another ponzy scheme from the fed.

I strongly suspect you have no idea what a  Ponzi_scheme.. There is not intent to defraud anyone (unlike a Ponzi scheme) nor are there "profits" to pay to anyone.

If you referring to the notion that a fractional reserve system is a "Ponzi" scheme, banks in the US have been operating on fractional reserve system since the colonial times. Back then, it was called the "capital requirement" which typically meant that banks held 1/4 to 1/2 of their deposits as "capital".

 

[laughing dog]

Banks in the US have never kept an amount of cash equal to their deposits. If they did, they would have nothing to lend. The reserve requirement in the US was low (5% or less, depending on the total amount of deposits and the type of deposit). Canada has no reserve requirement for their banks.

The Fed has been trying to get banks to lend for a couple of years. The banking system has not been lending out all of its "excess" reserves (reserves in excess of those required). I don't see this action having much operational lending effect, because in order for banks to lend, someone who is credit worthy has to want to borrow. But it is signal to the financial sector that the Fed is ready, able and willing to help in this crisis. It also signals that the Fed thinks the shit will hit the economic fan in 3 to 12 months, because monetary policy actions affect the economy with a lag.

This does help any bank whose required reserves were below the requirement. Now that bank will not have to act to acquire more reserves.

Yes, this post is absolutely correct. Banks lost their ass in 2009/10 and aren't going to take excess risk not matter what the government inducement.

I wouldn't be so sure that all banks will act so wisely. Some will and some won't, same as in '09/'10.

True. but the banking system as a group has been holding on to a historically large amount of "excess" reserves.

 

[Horatio Parker]

My understanding is that reserves are not lent out. Or were not...

The Fed has also resumed quantitative easing, but they won't call it that. QE floods the system with cash, so reserves are plentiful.

Another day, another ponzy scheme from the fed.

I strongly suspect you have no idea what a  Ponzi_scheme.. There is not intent to defraud anyone (unlike a Ponzi scheme) nor are there "profits" to pay to anyone.

If you referring to the notion that a fractional reserve system is a "Ponzi" scheme, banks in the US have been operating on fractional reserve system since the colonial times. Back then, it was called the "capital requirement" which typically meant that banks held 1/4 to 1/2 of their deposits as "capital".

He's a gold bug. There's no talking to him...

 

[TV and credit cards]

Who is trying to buy a house right now?

Our around-the-corner neighbors are trying to SELL their house, so they're obviously hoping SOMEONE is buying....

They had an open house and everything this past weekend.... got a decent turnout, too. (I got mixed feelings about that..... )

Decent turnout of their nosy neighbors and people who go to open houses on the weekend as a cheap form of entertainment.
I had one once. A few days later one of my neighbors stopped by and asked if I wanted to sell my rattan living room furniture. Hell yeah. The cushions were about done for and I had my fill of rattan. Thanks nosy neighbor.

 

[Worldtraveller]

I was reading another board and saw a claim that the Fed was going to not require banks to have reserves any more to help keep cash flowing. This sounded a bit made up.

So I looked it up.

Reserve RequirementsFor many years, reserve requirements played a central role in the implementation of monetary policy by creating a stable demand for reserves. In January 2019, the FOMC announced its intention to implement monetary policy in an ample reserves regime. Reserve requirements do not play a significant role in this operating framework.
In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.

This is starting to sound a little obvious, but at the same time, technical terms are being used that have specific, if not upfront meanings.

So I went here. And after browsing through it, I know less than when I started.

Time to look elsewhere.

Ah, this seems more digestible.

So my understanding is that banks must have an equal amount of dollars on hand as they do deposits. No reserves means that they don't need extra on hand, but they still need to break even. With the Fed Rate at 0, they can easily get a loan from the Fed to break even. So it sounds a bit loose, but loose might not be bad at this moment, except for one problem.

Who is trying to buy a house right now?

Well, we were.

Same. We put earnest money down even, but the both the builder (this is the first time we've bought new construction) and the lender have already said that none of the usual time commitments are going to be in play, so we have a long time to really decide on things. Since this is new construction, and the companies are starting to donate their masks to hospitals, I expect there to be an indefinite delay at some point.

If the housing market tanks, and there come a lot of homes up for sale, or existing prices drop. I am more than willing to walk away from that $1k earnest money, for the potential to save tens of thousands.

 

[laughing dog]

I strongly suspect you have no idea what a  Ponzi_scheme.. There is not intent to defraud anyone (unlike a Ponzi scheme) nor are there "profits" to pay to anyone.

If you referring to the notion that a fractional reserve system is a "Ponzi" scheme, banks in the US have been operating on fractional reserve system since the colonial times. Back then, it was called the "capital requirement" which typically meant that banks held 1/4 to 1/2 of their deposits as "capital".

He's a gold bug. There's no talking to him...

Perhaps, but fractional reserves were used when the US was on the gold system.

 

[RVonse]

My understanding is that reserves are not lent out. Or were not...

The Fed has also resumed quantitative easing, but they won't call it that. QE floods the system with cash, so reserves are plentiful.

Another day, another ponzy scheme from the fed.

I strongly suspect you have no idea what a  Ponzi_scheme.. There is not intent to defraud anyone (unlike a Ponzi scheme) nor are there "profits" to pay to anyone.

If you referring to the notion that a fractional reserve system is a "Ponzi" scheme, banks in the US have been operating on fractional reserve system since the colonial times. Back then, it was called the "capital requirement" which typically meant that banks held 1/4 to 1/2 of their deposits as "capital".

The ponzi part is the part where the fed continues to stimulate everyone and everything with the printing press.

A question for you laughing dog. Where is the $1000 Trump give away coming from? I agree it is going to a good cause but not that it is legitimate moneyTrump can be paying out. And yes the $1000 bailout is off topic ...but its really not.

The fed is so loose with its printing press and reserve requirements, that the central banks no longer trust each other. Which is why repo's are an issue.

 

[laughing dog]

I strongly suspect you have no idea what a  Ponzi_scheme.. There is not intent to defraud anyone (unlike a Ponzi scheme) nor are there "profits" to pay to anyone.

If you referring to the notion that a fractional reserve system is a "Ponzi" scheme, banks in the US have been operating on fractional reserve system since the colonial times. Back then, it was called the "capital requirement" which typically meant that banks held 1/4 to 1/2 of their deposits as "capital".

The ponzi part is the part where the fed continues to stimulate everyone and everything with the printing press.

That is utter nonsense. The Fed is not printing anything. Nor is the US supply of money increasing at an alarming rate.

A question for you laughing dog. Where is the $1000 Trump give away coming from? I agree it is going to a good cause but not that it is legitimate moneyTrump can be paying out. And yes the $1000 bailout is off topic ...but its really not.

The person you helped elect as our President will have to BORROW the funds.. You do realize the the US Treasury is not the Federal Reserve, and that the US gov't can borrow from anyone who will lend to it (i.e. purchase gov't bonds). Are you under the assumption that the Federal Reserve will simply purchase any or all of these new bonds if they are issued? There is no reason for that assumption to necessarily pan out.

Furthermore, creating reserves, in and of themselves, does not increase the supply of money. It is only when those reserves are used by banks to increase lending does the supply of money increase. So, it really is delusional to characterize the Federal Reserve as printing money in this situation.

The fed is so loose with its printing press and reserve requirements, that the central banks no longer trust each other. Which is why repo's are an issue.

Which central banks do not trust each other? And why would anyone think that reducing the reserve requirement to zero (which has been the case in Canada and some other countries for years) cause any central bank to mistrust the Federal Reserve?

 

[Loren Pechtel]

I wouldn't be so sure that all banks will act so wisely. Some will and some won't, same as in '09/'10.

True. but the banking system as a group has been holding on to a historically large amount of "excess" reserves.

They are under no obligation to lend if there's not enough qualified borrowers, thus there's no "excess".

 

[laughing dog]

I wouldn't be so sure that all banks will act so wisely. Some will and some won't, same as in '09/'10.

True. but the banking system as a group has been holding on to a historically large amount of "excess" reserves.

They are under no obligation to lend if there's not enough qualified borrowers, thus there's no "excess".

You are misinformed. Excess reserves are refer to reserves that are in excess of those that are required.

 

[Horatio Parker]

They are under no obligation to lend if there's not enough qualified borrowers, thus there's no "excess".

You are misinformed. Excess reserves are refer to reserves that are in excess of those that are required.

Excess reserves are the point of QE.