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Message started by pg on 03/13/23 at 03:22:17

Title: Reserve requirements
Post by pg on 03/13/23 at 03:22:17

I posted this in another thread; however, here it is again. They knew problems exist, this from an FDIC meeting from November.

https://www.youtube.com/watch?v=jAQg7wkK4as&list=PLDP1dqb4NLFGhTGm-gChfjNGCy_...

This isn't good at all, banks aren't required to have any money on hand.

As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.

https://www.federalreserve.gov/monetarypolicy/reservereq.htm

For those who don't know what fractional reserve banking is.

Fractional reserve banking is a system in which only a fraction of bank deposits are required to be available for withdrawal. Banks only need to keep a specific amount of cash on hand and can create loans from the money you deposit. Fractional reserves work to expand the economy by freeing capital for lending. Today, most economies' financial systems use fractional reserve banking.

https://www.investopedia.com/terms/f/fractionalreservebanking.asp

Best regards,

Title: Re: Reserve requirements
Post by Eegore on 03/13/23 at 04:10:41

This isn't good at all, banks aren't required to have any money on hand.

But they are still required to have 3 to 10% of the net transaction accounts, the "reserves" aren't part of that.

Didn't they (FOMC) move to an abundant reserve / "floor" implementation framework in 2019? Before that (technically 2008) they used the "corridor" method where they used allocation to create stable demand.

But in 2019 they switched to oversupplying reserve balances, which pushes rates down to the "floor" which is the interest rate paid on reserves. So now interest rates are controlled by over-supplying reserves, and they were greatly oversupplying the required level at that time.

That makes anything above zero a non-functioning policy, according to Section 19 of the Federal Reserve Act and legally they have to set it to zero don't they? 12 U.S.C. § 461(c)(2)

A lot of this is attributed to the pandemic, but most of it was in motion before it began right?

I've had this conversation before but they didn't really understand that liquidity coverage ratio has exemptions and wanted to lump all reserves into that or the HQLA's. For instance 10 percent of a bank's net transaction accounts, that doesn't include other bank liabilities, but if you just completely ignore that - it seems like banks don't have to keep any cash on hand. This is as far as I can see, inaccurate.

https://www.federalreserve.gov/monetarypolicy/reserve-maintenance-manual-about-this-manual.htm

Title: Re: Reserve requirements
Post by pg on 03/13/23 at 06:54:11

Isn't the FDIC part of the Treasury? What role does the FOMC have this? They are a committee of the Fed. Also, I don't know what 'net transfer accounts' you are referring to.

Best regards,

Title: Re: Reserve requirements
Post by Eegore on 03/13/23 at 19:04:38

Isn't the FDIC part of the Treasury?

No, it is it's own independent agency.

"What role does the FOMC have this?"

They changed/finalized the format that the Federal Reserve uses, which the direct reason why the rate went to zero, since it was a legal requirement and for simplicity - the floor system made above-zero rates redundant or un-needed. The FOMC decided to control rates by way of administered interest rates instead of by manipulating the supply of scarce reserves. All this started back in 2008.

What I notice people leave out when, inaccurately, claiming banks don't hold cash because of the reserve to zero implementation is that
under that system reserve balances are much much higher. Since banks earn interest on all of their holdings under the current system this contributes to keeping banks solvent. But if you want to b!tch about the FR, or scare me into buying some "recession-proof" assets it would make sense to leave that part out.

"Also, I don't know what 'net transfer accounts' you are referring to."

Things like checking accounts. They have to have a percentage value of those as required reserves. The claim that net transfer accounts are part of the zero reserve holdings is incorrect. It's continually taken out of context, and simply inaccurate.

Maybe this is because people don't realize "reserves" is a generic term and some mean reserves at the FED, and some mean reserves of on-site holdings covered under the liquidity coverage ratio. Those are often times confused, and also often times intentionally misrepresented.

Title: Re: Reserve requirements
Post by pg on 03/14/23 at 06:37:36

They changed/finalized the format that the Federal Reserve uses, which the direct reason why the rate went to zero, since it was a legal requirement and for simplicity - the floor system made above-zero rates redundant or un-needed.

I understand the premise - When the Fed adjusts the reserve requirement, it allows banks to charge lower interest rates, which in turn creates more appealing lending opportunities for those who need to borrow money.

However, by your own admission the may not have not have sufficient resources to cover a failing financial institution. Moreover, the FDIC is not independent then.

Since banks earn interest on all of their holdings under the current system this contributes to keeping banks solvent.

That sounds good till a bank is insolvent like SVB.

But if you want to b!tch about the FR, or scare me into buying some

How many times have you criticized others for the inability to have an adult conversation ??

Fractional reserve banking and not having the reserves can easily put our monetary system in a perilous position as demonstrated by the failure of SVB and the calamity of 2008.

Best regards,

Title: Re: Reserve requirements
Post by Eegore on 03/14/23 at 08:01:55

However, by your own admission the may not have not have sufficient resources to cover a failing financial institution. Moreover, the FDIC is not independent then.

I don't know how you got that the FR wouldn't have enough to cover, I literally said they have "much much" more. The FDIC is not part of that.

I would consider the FDIC to be separate from the "Treasury" as you asked as it is it's own entity, but it is not exclusive from the Treasury and operates completely absent from it and all other agencies. I'd say the FDIC is "part of" the Treasury like the Army is "part of" the Air Force. They are both part of the Armed Forces, but not "part of" each other.

"That sounds good till a bank is insolvent like SVB."

The zero requirement reserves aren't meant to address what SVB did and prevent poor management from destroying their system, they are to keep stability in the system, like how customers can still access their funds, and SVB isn't causing major collapse all over the place.

"How many times have you criticized others for the inability to have an adult conversation ??"

I think there is a considerable difference between calling someone "A" b!tch, and saying humans "b!tch" about things. When I hear people complaining about "The FED" and use garbage like their uncle went bankrupt because he couldn't get a loan just due to "The FED" denying him loan money... that guy is just b!tching, he's not even complaining about the right institution. I wouldn't go call him names because he disagrees with me about how banking works, or because he took to long to log into a forum and reply to me.

"Fractional reserve banking and not having the reserves can easily put our monetary system in a perilous position as demonstrated by the failure of SVB and the calamity of 2008. "

I agree with the 2008 part, which is why they have the massive reserves in the current system, at the Fed, but not required inside each bank. SVB did not fail because they are no longer required to carry Fed reserve amounts, that would not have prevented what happened.

Either way, the claim that banks do not have to have any cash or liquid assets is not accurate since they do still have the requirement to have 3 to 10% of the net transaction accounts. A different type of "reserve".

Title: Re: Reserve requirements
Post by justin_o_guy2 on 03/14/23 at 12:52:21

The 580+ page book I read does not make the federal Reserve anything that should exist. America was doing Great prior to it. The money problems were created to get the Fed accepted. They have been a monumental failure in delivering what they were supposed to deliver. If they were so good the dollar wouldn't be so worthless.
The story of people being able to prosper doesn't seem to impact anyone..

Read The Creature from Jekyll Island or watch G Edward Griffin videos.
If anyone has not, you seriously should

Title: Re: Reserve requirements
Post by pg on 03/15/23 at 06:02:15

I literally said they have "much much" more. The FDIC is not part of that.

Just because you said it doesn't make it so. Why is the FDIC not fulling it's stated duties?

I think there is a considerable difference between calling someone "A" b!tch, and saying humans "b!tch" about things.

Pot meets Kettle..............

do not have to have any cash or liquid assets

I did not say that................

Best regards,

Title: Re: Reserve requirements
Post by Eegore on 03/15/23 at 07:01:37

Just because you said it doesn't make it so.

Then look it up, the FR us astronomically huge now because of the floor system. Tons and tons of arguments against the bigger and bigger FR are made daily, I just listened to one this morning, are they all wrong? Or am I misunderstanding what you are saying?

Why is the FDIC not fulling it's stated duties?

What duties specifically are they failing at? The FDIC insures the customers holdings, not the failing operational structures of bad management decisions, or a large scale sudden market demand. When the California Department of Financial Protection & Innovation seized SVB, the FDIC became it's receiver... this is exactly what it is for. As with all insurance there are limits, but that doesn't mean it is because the ability to compensate doesn't exist.

https://www.fdic.gov/news/press-releases/2023/pr23016.html

https://apnews.com/article/svb-fed-bonds-rates-banks-inflation-a24b28b3caeede91c76cd120aa9b7966

"I did not say that................"

Ok fair enough, you said: "This isn't good at all, banks aren't required to have any money on hand."

What did you mean by that? I interpreted the word "money" to mean cash or assets that operate as liquid asset like money. What are you saying banks do not need to have on hand?

For instance with SVB, they had 20 Billion in liquid assets to sell, at a loss, but they had liquid assets.

Title: Re: Reserve requirements
Post by pg on 03/16/23 at 03:25:22

"This isn't good at all, banks aren't required to have any money on hand." What are you saying banks do not need to have on hand?

Just what I said, they are not required to have any money on hand. It is at their discretion.............

For instance with SVB, they had 20 Billion in liquid assets to sell, at a loss, but they had liquid assets.

They didn't have enough, that was reported as the largest bank run in US history - $42B in 24 hours.......................

Best regards,

Title: Re: Reserve requirements
Post by Eegore on 03/16/23 at 05:17:30

Ok does "money on hand" to you, mean cash?

The reserve requirement ratio is the amount of money the bank needs to hold at its account with one of the FR Banks per-dollar percentage of deposits. I get if they had a big pile of cash in the back it wouldn't count toward any of that requirement. Reserve requirements are not same as capital though, so that adds to the misinterpretation sometimes.

The issue is that the supply of reserves was so high that it was in an inelastic part of the demand curve for reserves. Banks ended up holding much much more reserves than needed, in that specific format. So by policy they had to reduce the reserve ratio to zero. They removed reserve requirements, like the amount of cash you need to keep on hand - but there's still capital requirements.

"They didn't have enough, that was reported as the largest bank run in US history - $42B in 24 hours......................."

Agreed. So are you thinking banks should warehouse billions of dollars of physical bills, or just a percentage as previously required? I'm not sure what the expectations should be, or how you are assessing the FDIC is not operating as designed. Depositors can still get their money, it didn't disappear when SVB was shut down.

What stated duties are the FDIC not fulfilling?..............
They are supposed to protect the customer, not the bank.

So just a clarification here, I am not trying to "defend" or "justify" etc. anything that the FDIC, Treasury, Federal Reserve, or any banking institution has ever done.

Title: Re: Reserve requirements
Post by pg on 03/16/23 at 17:12:02

Ok does "money on hand" to you, mean cash?

The reserve ratio is the percentage of a bank's deposits that it must keep in cash as a reserve in case of mass customer withdrawals.

Banks ended up holding much much more reserves than needed, in that specific format.

I disagree…………..

Depositors can still get their money, it didn't disappear when SVB was shut down.

Why did it go into receivership?

Best regards,

Title: Re: Reserve requirements
Post by Eegore on 03/16/23 at 18:37:41

"The reserve ratio is the percentage of a bank's deposits that it must keep in cash as a reserve in case of mass customer withdrawals."

Ok but what do you interpret "money" to be when you say "money on hand"? Do you mean cash? Are you thinking banks should warehouse billions of dollars in cash to handle the money that could be withdrawn? If not cash, then "money", and what would "money" be? It it reasonable for this to be at a FR location?

I disagree…………..

15 years of debate about how the FR is big, and getting bigger is directly due to it's change from a corridor system to a floor system. This created massive holdings.

https://www.aier.org/article/corridor-versus-floor-operating-systems/
https://www.cato.org/cato-journal/spring/summer-2019/feds-operating-framework-how-does-it-work-how-will-it-change
https://www.mercatus.org/research/research-papers/great-divorce
https://www.daytrading.com/corridor-system-vs-floor-system

I actually never discussed this with anyone that thought the FR reserve holdings were not over-funded after the change, how are you coming to this conclusion?

"Why did it go into receivership?"

Ok let me clarify: All Depositors did not lose their money permanently. SVB went into receivership to the FDIC as it is meant to protect insured depositors, not the private bank itself. The FDIC is not supposed to prevent market instability, that is what a different agency does. For instance the FR could reduce the interest rate hikes.

FDIC is insurance. My auto insurance doesn't go prevent the world from totaling out my car, they financially compensate me or others for damages, replace parts/vehicles etc. Just as the FDIC doesn't go prevent people from withdrawing billions of dollars from a single bank, they just pay out to their qualified "customers" so to speak. Unfortunately the $250K is pretty dang low.

Title: Re: Reserve requirements
Post by pg on 03/17/23 at 13:23:27

"The reserve ratio is the percentage of a bank's deposits that it must keep in cash as a reserve in case of mass customer withdrawals."

Ok but what do you interpret "money" to be when you say "money on hand"? Do you mean cash? Are you thinking banks should warehouse billions of dollars in cash to handle the money that could be withdrawn? If not cash, then "money", and what would "money" be? It it reasonable for this to be at a FR location?

$$ Cash $$

how are you coming to this conclusion?

Perhaps I have a unembellished view; however, I don't believe this state ment is accurate is actual practice.

Material inflation in the real economy was not going to occur under the new floor system because the increase in money (a reflationary force) in the system was simply offsetting the contraction in credit (a deflationary force).

All Depositors did not lose their money permanently.

https://www.cnbc.com/2023/03/13/wall-street-not-taxpayers-will-pay-for-the-svb-and-signature-deposit-relief-plans-.html

“For the banks that were put into receivership, the FDIC will use funds from the Deposit Insurance Fund to ensure that all of its depositors are made whole,” said a senior Treasury Department official, who spoke to reporters Sunday about the plan on the condition of anonymity.

I don't understand how the previous statement is accurate.

Depositors generally have of up to $250,000 of coverage per bank, per account ownership category through the Federal Deposit Insurance Corporation, or FDIC.

Best regards,

Title: Re: Reserve requirements
Post by Eegore on 03/17/23 at 22:02:15

$$ Cash $$

I said cash or liquid assets and you stated you didn't say that. Either way, we agree that cash is liquid asset and you mean on-hand. The question is how much? Should they be warehousing billions at branch locations, or just go back to a percentage?

"Perhaps I have a unembellished view; however, I don't believe this state ment is accurate is actual practice.

Material inflation in the real economy was not going to occur under the new floor system because the increase in money (a reflationary force) in the system was simply offsetting the contraction in credit (a deflationary force)."

I partially agree. But this is more of the impacts of having a massive FR due to the implementation of the floor system. The floor system did however create a much much larger reserve holdings pool, at the FR. This made zero-holdings at locations basically a requirement. Should they go back to a corridor method? I'm not really sure.

"I don't understand how the previous statement is accurate.

Depositors generally have of up to $250,000 of coverage per bank, per account ownership category through the Federal Deposit Insurance Corporation, or FDIC."

This is the type of thing I was talking about earlier. People tend to think one part of a financial mechanism applies to all other parts and that they are all the same. For instance the DIF, which is part of the FDIC, is making sure the uninsured amounts are covered, but by slightly different means than the standard FDIC method(s).

The US Treasury, which is NOT part of the FDIC, is offering $25 billion from its Exchange Stabilization Fund as basically a security if the asset sales, and the DIF don't pan-out. The DIF is funded differently, through straight quarterly fees on banking institutions.

So by using the bank-fees to cover the uninsured amounts they are avoiding a "bail-out" type system like before where the failing bank gets to just keep on chugging along, partially using taxpayer money.

So the FDIC is doing what it is designed to do by creating the receivership and also tossing out the 250K, while a new system is using bank-fees (or Wall Street as they say) to pay out the difference. How are they able to back this reliably through the Treasury? The Floor system and the massive reserves it created.

How is the FDIC failing at its stated duties?

Title: Re: Reserve requirements
Post by pg on 03/18/23 at 16:05:35

I said cash or liquid assets and you stated you didn't say that.

do not have to have any cash or liquid assets

I did not say that................

'any' infers that none exists

How is the FDIC failing at its stated duties?

Do I understand this correctly? The new floor system created the funds that are in the ESF? My concern is if someone had or an institution had more than $250K in the bank they would be out of luck without the intervention of someone other than the FDIC.

Best regards,

Title: Re: Reserve requirements
Post by Eegore on 03/18/23 at 17:59:09

"'any' infers that none exists"

Ok. Then the "on hand" part is what led me to believe cash at the bank location. Money = cash. On hand = at the bank location. So warehousing billions of dollars on-site. Either way legal monetary policy, by my assessment, required the zero holdings rate. Good or bad, that's how it is done now.

"Do I understand this correctly? The new floor system created the funds that are in the ESF?

Ok so technically the ESF, which is managed by the Treasury, backs the Federal Reserve against losses. At this point it's not needed since the floor system created the massive holdings at the FR at this time. The ESF is not funded directly by reserve holdings, but by three other major contribution methods.

"My concern is if someone had or an institution had more than $250K in the bank they would be out of luck with the intervention of someone other than the FDIC."

Do you mean they would be out of luck without the intervention of someone other than the FDIC?

The FDIC insures up to $250k, this is their threshold and people or organizations that want more coverage have to take the necessary steps. This has been the same for a long time, and this is what is being done with the SVB situation. Business as usual with the FDIC coverage.

Title: Re: Reserve requirements
Post by justin_o_guy2 on 03/18/23 at 19:55:54

The federal Reserve should not exist.

Title: Re: Reserve requirements
Post by pg on 03/19/23 at 07:03:52

people or organizations that want more coverage have to take the necessary steps.

I am not familiar what the additional steps may be.

Best regards,

Title: Re: Reserve requirements
Post by Eegore on 03/19/23 at 11:59:43

"I am not familiar what the additional steps may be."

I'd say the 3 most common for the average human are:

Open an account at another bank.

Brokerage.

Different/Additional ownership categories.

There's even more but they are more complex. I prefer separating accounts, and utilizing Intrafi.

In any case, no, people and businesses are not stuck with only $250,000 FDIC coverage unless they insist on banking at one location, with no other humans involved, and refuse all other alternative capital holding options.

What stated duties is the FDIC failing at?

Title: Re: Reserve requirements
Post by pg on 03/19/23 at 13:32:57

What stated duties is the FDIC failing at?

If they need bailed out by the ESF/Treasury they are unable to fulfill their obligations.

Open an account at another bank.

Brokerage.

Different/Additional ownership categories.

A carnival shell game doesn't inspire confidence...............

Best regards,

Title: Re: Reserve requirements
Post by Eegore on 03/19/23 at 15:47:10

"If they need bailed out by the ESF/Treasury they are unable to fulfill their obligations."

The FDIC is not being bailed out. It is paying out the insurance amounts that it covers, not amounts it does not cover - you know, like literally all other insurance. Unless you know of an insurance that pays more than it says it will. I don't.

The FDIC is not a market protection, it will never prevent bank runs, it will only provide insurance to consumers - at the rate it says and not more, just the rate that is insured. This is exactly what it is doing, and it is not being "bailed out" by any other agency or the taxpayer. The customers account amounts - that were never covered in any way by the FDIC - are being funded by other banks, fees and adjustments.

It's similar to having additional insurance like AFLAC. You get covered a certain amount by your primary insurance - say up to $250k, and also you get supplemental additional payments from AFLAC. This doesn't mean your primary insurance "isn't fulfilling it's obligations", it means your expenses exceeded the amount you insured yourself for. Would AFLAC be "bailing out" your insurance if they paid over the amount your insurance ever said it would cover?

"A carnival shell game doesn't inspire confidence..............."

That's too bad. Maybe start to gain legislative leverage on increasing the FDIC amount, lobby for some change. I for one could care less since I am not going to keep hundreds of thousands of dollars in a savings account making almost no returns on it.