23 Aug 2014

The Interest Rate Fed Pays for Required versus Excess Reserves

Banking 6 Comments

I have known since it happened (in fall of 2008) that the Fed began paying interest on excess reserves held by the commercial banks. However, I haven’t seen much discussion about the discrepancy between the rate paid on required versus excess reserves:

This San Fran Fed paper gives the basics on the topic, but does anyone have any other links?

6 Responses to “The Interest Rate Fed Pays for Required versus Excess Reserves”

  1. Enopoletus Harding says:

    Apparently, the rate on required reserves was always meant to be higher than the rate on excess reserves.
    I guess this was a small incentive for the whole banking system to convert excess into required reserves.

  2. Cosmo Kramer says:

    It is discussed in a book I have on my shelf……… let me see if I can find it.

  3. Gamble says:

    Maybe I am being lazy but I don’t get the hook? Please explain.

  4. Major.Freedom says:

    I cannot even begin to fathom how much malinvestment has been brought about by this monetary socialism madness.

  5. flow5 says:

    RRs aren’t a tax. Remunerating excess IBDDs is simply debt monetization. But paying interest on excess reserves induces dis-intermediation for just the non-banks. It reduces NIM for both the CBs and NBs. It increases bad debt for everyone.

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