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I don’t understand how the so-called “ample reserves regime” works but I would argue, given current circumstances, that it does not provide for ample reserves.

• NovemberWhiskey 4y ago
  >I don’t understand how the so-called “ample reserves regime” works but I would argue, given current circumstances, that it does not provide for ample reserves. The ample reserves regime is "banks keep a lot of reserves because the Fed started paying them interest on them, rather than keeping as little as possible because it was more profitable to lend interbank". It is factually the case that it provides for ample reserves. I invite you to look at this time series: https://fred.stlouisfed.org/series/TOTRESNS https://fred.stlouisfed.org/series/TOTRESNS ... we can agree that $3tn is more than say $60bn, yes? >From my read it appears that under the current regime banks can use 100% of depositor funds for leveraged speculation. ... no; because capital adequacy measurements (see the Basel Accords) are a thing, and control risk-taking much more than reserve ratios, which were more of a monetary policy control for short-term rates. >I don’t understand the dog-whistle comment - seems dismissive without evidence. You claim that the move to zero reserves isn’t worth paying attention to but failed to explain how the new regime works or how it is safer for depositors. People who are more-or-less clueless about the subject matter latch onto it, and draw inappropriate conclusions from it. If you want to claim that the Fed having zero reserve requirements is encouraging risk-taking from banks, you probably ought to have a theory of "why". It is nonetheless a popular soundbite from the "banks are out of control and the fox is guarding the hen-house" crowd. The perspective that the Fed's reserve ratios are there to protect depositors is decades out-of-date and (to analogize with subject matter more familiar to most posters here) is about at the level of confusing Java with JavaScript.
  • pgwhalen 4y ago
    I understand it’s frustrating to be “the bad guy” in these threads, but thank you for putting in the effort to educate.
  • lowkey 4y ago
    If the Ample Reserve Regime worked as intended, then why did SVB (and apparently close to 400 other banks) choose to buy US Treasuries instead of keeping these funds at the Fed? Clearly the Ample Reserve Regime didn't help in this case since these banks have taken 100% of user deposits and used them for speculation (likely leveraged). I'll admit that I am not an expert on banking regulations. However since the 2008 Great Financial Crisis revealed the enormous amount of fraud perpetrated by the banks, I've grown skeptical of the Fractional Reserve Banking system and the Federal Reserve and have done my best to educate myself on the topic. I don't need a theory of why banking with zero reserves is risky for depositors. I can simply point to the evidence of the recent bank failures under the Ample Reserves Regime where the banks clearly did not have ample reserves. I don't think your condescending tone is warranted, especially given the track record of the banking industry. We are all trying to learn here and could do without the snark.
    • tripletao 4y ago
      They're not "banking with zero reserves"; they're just banking under a different and more complicated set of regulations on those reserves than that one simple ratio. In principle that's a better and finer-grained set of regulatory tools, though it obviously didn't work too well for the SVB. The SVB's problem was that they were allowed to ignore the mark-to-market losses on their long-term bond-like assets when interest rates increased, because they said they were going to hold them to maturity. That let them keep gambling that their losses would reverse, instead of raising capital after they became MTM undercapitalized but before they became insolvent. I'm not an expert here, but as far as I know the reserve ratio would have accounted for those assets in the same way and had the same problem.