I am worried this could be a precursor to a bank run and possible wide-scale insolvency of banks.
I assume that someone will explain why I am an idiot and have no reason to worry.
The Board reduced reserve requirement ratios to zero percent effective March 26
91–99 of 99 posts
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#92Yikes, this is kind of scary. This could magnify the losses dramatically as lenders start to implode due to the cascade of defaults. If anything, they should increase the reserve requirements to prevent instability and encourage a flight from risky assets. Yes, this will make the stocks go down now, but it would probably result in fewer people getting laid off and going broke in the future. I'd rather see highly leve…
Could it lead to insolvency of banks and a potential bank run?
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#93Earlier quoted context omitted.
We are following Japan’s path to stagnation.
What other way is there? Japan and Europe is a preview, but there are few paths available as your structural demographics change and your economy tilts towards services instead of manufacturing. Civilization matures, the foundational economics change, this is the result. Past performance does not guarantee future returns [1]. We can't rip the bandaid off because there are still too many people desperately clinging to…
We, the national we, need to have hard conversations about what changes must occur to balance the needs of all with our ability to provide. This obviously means some people will see reductions, others will see increases. The net result is overall more equitable society. The longer we delay the more hardship we all will have to endure. The mere fact that we have gone decades kicking cans is evidence of a deeply broken society without foresight and without leadership. I am not saying we do not have foresight or leaders, merely that our government is failing to foresee and lead.
These changes should have happened decades ago. Every day we delay is another day picking the edges of the bandaid while the wound beneath is septic.
I can suggest my ignorant idealsof potential solutions and delve into the weeds over things but that's a waste of effort. The people have spoken, and they are saying they would rather suffer more than consider how else the country could function.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#94With 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 s…
It's completely insane that they describe this in linear terms. The effects of reducing the reserve requirement is inverse-linear with respect to the ratio. Since the money multiplier is 1/r, reducing the reserve requirement to 0 means that any dollar has an unbounded limit as to how far it can be re-lent. That is quite literally infinitely more unprecedented than a 100x bigger dislodging of the "reduction in the res…
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Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#95ELI5?
It's now legal for a bank with $1,000,000,000 in deposits to have absolutely zero cash available to pay out those deposits if people want their cash out.
What could go wrong.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#96Earlier quoted context omitted.
> FDIC and NCUA are not bottomless pits of money "FDIC insurance is backed by the full faith and credit of the United States government." [1] Given that FDIC insurance is backed by the United States government, if the FDIC system is unable to cover its losses, wouldn't that represent the United States defaulting on its obligations? I'm not saying that's impossible, but it seems like FDIC could represent a...pretty la…
I mean the FEd is currently considering what will amount to a near $1T aid Package as well, so I don't know how much the fed has on hand bit it really can't be much much more than 2T or so. So maybe.
Try not to confuse the Federal Reserve (the Fed) with the Federal Government.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#97Earlier quoted context omitted.
No it won't. Reserve ratios are commonly modified, sometimes by a decent amount. Banks have been able to move money among accounts to effectively reduce reserve requirements nearly at will. And banks have always been able to lend past the reserve requirement, as long as they soon (after the fact) borrow to cover it, usually short term via the Fed overnight lending rate. The average person has zero idea that this happ…
This is a major major change though. How do we know this isn't some kind of Klein-esque "Shock Doctrine" type of change to start undoing banking regulation as a whole?
Because we have models that have been tested, and we have evidence from hundred of countries for around 100 years.
Your question seems to imply that around every corner there are likely dragons. There are not. Mankind has extensive experience with central banking at this point, including this case and beyond.
There have effectively been zero reserve requirements for a long time. Go read on the difference between endogenous and exogenous money creation, and the resulting literature. Your understanding is far outdated, as the world has moved effectively to endogenous money over the past 40 years, as can be seen in the literature on the topic.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#98SO, we've summoned the monster that almost destroyed us all in 2008.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#99Earlier quoted context omitted.
> FDIC and NCUA are not bottomless pits of money "FDIC insurance is backed by the full faith and credit of the United States government." [1] Given that FDIC insurance is backed by the United States government, if the FDIC system is unable to cover its losses, wouldn't that represent the United States defaulting on its obligations? I'm not saying that's impossible, but it seems like FDIC could represent a...pretty la…
The FDIC can get as much currency as they need from the Treasury to cover their obligations, so in that very technical sense they aren't likely to default. However, in the event this were ever actually tested they might as well have defaulted since the resulting inflation would be so high that currency would be worthless. Going from "can't get your money out of the bank" to "your money can't buy anything" isn't exact…
(I realize this is pretty old, but I just came back to look at this, sorry)
> However, in the event this were ever actually tested they might as well have defaulted since the resulting inflation would be so high that currency would be worthless. Going from "can't get your money out of the bank" to "your money can't buy anything" isn't exactly an improvement.
While I could see this being true, I don't see how pulling cash from my bank and storing it under a mattress helps this scenario at all. Inflation hurts every dollar equally, regardless of whether it's stored in my bank, under my mattress, or is sent to me from the FDIC.