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My current understanding is that the reserve rate is now 0% https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetary
by KyleBrandt 5y ago
My current understanding is that the reserve rate is now 0% https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm , so it can all be loaned out.
- woodruffw 5y agoYeah. My operating assumption was that the 0% rate was an emergency maneuver by the Fed to increase liquidity at the very beginning of COVID, but it's not clear when (if at all) they plan on returning to a nonzero reserve rate. OTOH, the Fed has other mechanisms for encouraging bank reserves -- I believe they still pay interest on any excess reserves that banks hold at the end of each day. That rate (the "IOER rate") is (still) significantly higher[1] than the federal funds rate[2], so banks can essentially collect free money by keeping any reserves at all. [1]: https://fred.stlouisfed.org/series/IOER https://fred.stlouisfed.org/series/IOER [2]: https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS