The Board reduced reserve requirement ratios to zero percent effective March 26
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Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#2ELI5?
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#3I don’t know much about finance and I find this a bit terrifying. Are they hoping banks will buy lots of stocks or what is the rationale?
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#4For net transaction accounts, i.e. “demand deposits, automatic transfer service (ATS) accounts, NOW accounts, share draft accounts, telephone or preauthorized transfer accounts, ineligible bankers acceptances, and obligations issued by affiliates maturing in seven days or less”.
This isn’t a wholesale elimination of reserve requirements.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#5I don’t know much about finance and I find this a bit terrifying. Are they hoping banks will buy lots of stocks or what is the rationale?
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Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#6For net transaction accounts, i.e. “demand deposits, automatic transfer service (ATS) accounts, NOW accounts, share draft accounts, telephone or preauthorized transfer accounts, ineligible bankers acceptances, and obligations issued by affiliates maturing in seven days or less”. This isn’t a wholesale elimination of reserve requirements.
So — checking accounts for businesses and consumers...?
This does not sound great. Can somebody clarify as to how this is a sensible move at all / what the intention is?
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#7With the caveat that I’m by no means an economist...
The table at the bottom puts this in context: reserve requirements, which have never been reduced by more than $2 billion across the economy in any year prior, are suddenly reduced by $200 billion - the entire regulatory program seems to have been unwound.
Presumably this will give late banks desperately needed liquidity and ability to lend, but it also increases systemic risk. Desperate times these are indeed, but this is an unprecedented measure.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#8it will be absolutely great for the economy, rocket fuel, for about 5 years. Eventually will lead to some insane fundamental that will require a bail out.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#9For net transaction accounts, i.e. “demand deposits, automatic transfer service (ATS) accounts, NOW accounts, share draft accounts, telephone or preauthorized transfer accounts, ineligible bankers acceptances, and obligations issued by affiliates maturing in seven days or less”. This isn’t a wholesale elimination of reserve requirements.
So — checking accounts for businesses and consumers...? This does not sound great. Can somebody clarify as to how this is a sensible move at all / what the intention is?
They are trying to keep banks liquid to avoid a panic and closure. People are already starting to pull cash.
This is a 9/11 like event, except the impacts are nationwide, not just in the NY Metro area. Companies and people are just going to stop paying bills. I'd guess you're looking at 2-4 million people out of work in the next week. The only saving grace is that this season is a low business period for retail and other sectors anyway, but they'll start dying in the summer.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#10There's a point where:
1)traditional policy tools are ineffective because as rates get to zero, cutting them doesn't really provide any kind of incentive any more
2)interventions get more and more extreme and reach the point where they actually can increase panic rather than reduce it
It's pretty clear we're well past #1 and could be at #2.
The problem that policy-makers are facing here is the real economic impact of this crisis as unknowable but is very likely to be very large. So it's hard to incentivise lending.
For example if you're a bank in this environment it's pretty tough to have the courage to go out and lend to small businesses knowing the next few months are going to be brutal for their cashflow. The fed is going to have some difficulty convincing them to lend even in the presence of a zero reserve requirement ratio given that those banks will look at very serious potential writedowns on their loans in any downside scenario.