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The Fed actually completely eliminated the reserve requirement in March of last year (1). Unsurprisingly, this hasn't gotten a lot of attention from the corpora

The Fed actually completely eliminated the reserve requirement in March of last year (1). Unsurprisingly, this hasn't gotten a lot of attention from the corporate media. 1 - https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm

stephen_g 5y ago
Lots of countries have no reserve requirement. It actually doesn’t change much, just the asset mix banks hold. How much a bank can lend is basically entirely determined by the amount of paid-up capital, not reserves anyway. The maximum ratios are fairly strictly regulated (e.g. Basel rules).
- mandelbrotwurst 5y ago
  So, I'd been interpreting this change as meaning that they're no longer required to carry some minimum amount of cash. I would be more confident in banks if they were required to carry some minimum fraction of their balances in cash in order to guarantee availability of funds. That said, I'm re-reading the page that I linked a bit more closely and realizing that it doesn't just say "reserve requirements must be satisfied by holding vault cash" , it says "reserve requirements must be satisfied by holding vault cash and, if vault cash is insufficient, by maintaining a balance in an account at a Federal Reserve Bank". It's not clear to me whether that "balance" at a Fed bank must be in cash, but even if it is, I'm realizing that the requirement I was hoping existed may not have existed even prior to this change. TL;DR - Requirement for strong, local, cash reserves would be better than weaker requirements is better than no requirements. I'm not sure how close to the good end of that spectrum we've ever been, but where we are now certainly doesn't seem too good. Note: Please do explain if there is some nuance that I'm missing here
  - NovemberWhiskey 5y ago
    This is the nuance you are missing: https://fred.stlouisfed.org/series/EXCSRESNS https://fred.stlouisfed.org/series/EXCSRESNS The reserve requirement served no purpose because banks were holding trillions of dollars in excess of their reserve requirements meaning that the reserve ratio was an ineffective monetary policy tool.
- zzzzzzzza 5y ago
  newb question what is paid up capital?
  - stephen_g 5y ago
    It's a combination of capital paid from shareholders holding fully paid shares (i.e. shares that were paid in full when issued - for example, when shareholders buy new shares in capital raising rounds) and retained earnings.
NovemberWhiskey 5y ago
I'd be interested to hear why you think this is newsworthy. It's not like reserve requirements were an effective monetary policy implement for the past several years - banks have been holding hugely in excess of the required reserves for a while now.

stephen_g 5y ago

Lots of countries have no reserve requirement. It actually doesn’t change much, just the asset mix banks hold. How much a bank can lend is basically entirely determined by the amount of paid-up capital, not reserves anyway. The maximum ratios are fairly strictly regulated (e.g. Basel rules).

mandelbrotwurst 5y ago
So, I'd been interpreting this change as meaning that they're no longer required to carry some minimum amount of cash. I would be more confident in banks if they were required to carry some minimum fraction of their balances in cash in order to guarantee availability of funds. That said, I'm re-reading the page that I linked a bit more closely and realizing that it doesn't just say "reserve requirements must be satisfied by holding vault cash" , it says "reserve requirements must be satisfied by holding vault cash and, if vault cash is insufficient, by maintaining a balance in an account at a Federal Reserve Bank". It's not clear to me whether that "balance" at a Fed bank must be in cash, but even if it is, I'm realizing that the requirement I was hoping existed may not have existed even prior to this change. TL;DR - Requirement for strong, local, cash reserves would be better than weaker requirements is better than no requirements. I'm not sure how close to the good end of that spectrum we've ever been, but where we are now certainly doesn't seem too good. Note: Please do explain if there is some nuance that I'm missing here
- NovemberWhiskey 5y ago
  This is the nuance you are missing: https://fred.stlouisfed.org/series/EXCSRESNS https://fred.stlouisfed.org/series/EXCSRESNS The reserve requirement served no purpose because banks were holding trillions of dollars in excess of their reserve requirements meaning that the reserve ratio was an ineffective monetary policy tool.
zzzzzzzza 5y ago
newb question what is paid up capital?
- stephen_g 5y ago
  It's a combination of capital paid from shareholders holding fully paid shares (i.e. shares that were paid in full when issued - for example, when shareholders buy new shares in capital raising rounds) and retained earnings.

NovemberWhiskey 5y ago

I'd be interested to hear why you think this is newsworthy. It's not like reserve requirements were an effective monetary policy implement for the past several years - banks have been holding hugely in excess of the required reserves for a while now.