23
Aug
2014
The Interest Rate Fed Pays for Required versus Excess Reserves
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?
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.
http://www.federalreserve.gov/monetarypolicy/20081105a.htm
It is discussed in a book I have on my shelf……… let me see if I can find it.
these are better
http://www.economonitor.com/blog/2010/08/some-observations-regarding-interest-on-reserves/
http://www.federalreserve.gov/monetarypolicy/20081006a.htm
Maybe I am being lazy but I don’t get the hook? Please explain.
I cannot even begin to fathom how much malinvestment has been brought about by this monetary socialism madness.
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.