Banks get another reason to stop lending

Banks now have another reason to stop lending: The Federal Reserve will pay banks a higher interest rate on their “excess reserves” or any money over their required minimum savings.    

The Fed enforces capital reserve requirements for its member banks and depository institutions to ensure that they can absorb a reasonable amount of loss. In other words, the Fed holds money for its members and pays interest on the amount that exceeds the minimum requirement.  After all, it is called the Federal Reserve Bank.  Currently, that interest rate is 0.25%.  The minimum amount of money required is determined by the capital ratio, a percentage of a bank's capital to its risk-weighted assets.

The calculation of this capital ratio has been a hot issue lately.  Many of the large banks that failed were tremendously overleveraged; put another way, they borrowed way too much money.  Based on testimony by an analyst at a recent FCIC (Financial Crisis Inquiry Commission) hearing, some banks were leveraged as high as 95 times.  A normal ratio is closer to 10 times and is much less risky.  Some congressional leaders and bankers believe that part of the solution to preventing another financial crisis is requiring that banks have higher reserve requirements. 

Well, now you better understand what is going on and have yet another reason to feel duped by the system.  While I understand the Fed’s strategy, which is to avoid inflation and to maintain stability of the financial system, this will only do more to save the banks, not help the folks on Main Street.

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Comments

[James F.]

[After all, it is called the Federal Reserve Bank.]

If you'll pardon my saying so, the fact that the Federal Reserve Bank is called that has nothing whatsoever to do with it being a branch of the Federal government, or having reserves of any kind.

What the Federal Reserve Bank is, exactly, is a consortium of twelve privately-owned banks (look it up) which are not part of the United States Government. That's why we have the Federal Reserve of New York, Boston, Chicago, etc. If the Fed were, in fact, a Federal entity, why would there be a need for all these different in different cities (and under private control, no less)?

The primary owners of the Federal Reserve Bank Are:

1. Rothschild's of London and Berlin
2. Lazard Brothers of Paris
3. Israel Moses Seaf of Italy
4. Kuhn, Loeb & Co. of Germany and New York
5. Warburg & Company of Hamburg, Germany
6. Goldman, Sachs of New York
7. Rockefeller Brothers of New York

Do any of these entities sound like they have anything to do with the Federal government? If so, I can assure you that it's purely coincidental. :)

Finally, as far as reserves are concerned, the Fed creates both money and credit out of thin air. That is, the US Dollar is not backed by anything but the faith of the people who use it. We went off the gold standard in 1973 and, since then, there has been literally nothing to stop the Fed from printing as much money as it likes.

(Yes, I know this sounds incredible and I invite you to do your own research as to what the Fed is and how it operates. If you take the time to do this, you'll find that my assertions are correct.)

In short, the bankers who chose the name "Federal Reserve Bank" chose that name for a reason. Just as you wouldn't call a new car model "The Wimp," neither would you label a financial institution that does what the Fed does "A Privately-owned Bank That Creates Money and Credit From Thin Air."