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> Monetary policy was all but assured to generate Fed profits prior to 2008. That changed once the Fed started paying banks interest on their reserve balances a

> Monetary policy was all but assured to generate Fed profits prior to 2008. That changed once the Fed started paying banks interest on their reserve balances and making large open market purchases of long-maturity Treasurys and mortgage-backed securities The Fed is currently paying banks 4.9% on their reserves (this rate was always 0% before 2008). and they pay you close to 0% on your checking account. When some people tried to open a competing bank that would pass through this interest rate to depositors the were denied a license by the Fed (https://www.chicagobooth.edu/review/safest-bank-fed-wont-sanction https://www.chicagobooth.edu/review/safest-bank-fed-wont-san...). The banking system is pretty much a value destroying subsidy sink at this point.

gruez 4y ago
>The Fed is currently paying banks 4.9% on their reserves (this rate was always 0% before 2008). and they pay you close to 0% on your checking account. Get a better bank then. There's half a dozen that's paying 4.5% or more: https://www.investopedia.com/best-high-yield-savings-accounts-4770633 https://www.investopedia.com/best-high-yield-savings-account... > When some people tried to open a competing bank that would pass through this interest rate to depositors the were denied a license by the Fed (https://www.chicagobooth.edu/review/safest-bank-fed-wont-san https://www.chicagobooth.edu/review/safest-bank-fed-wont-san...). The banking system is pretty much a value destroying subsidy sink at this point. Yet the banks listed above don't seem to have much trouble existing.
- JumpCrisscross 4y ago
  > people tried to open a competing bank that would pass through this interest rate to depositors the were denied a license by the Fed Matt Levine summarized the Fed's points well [1]. They're sensible reasons, though I suspect they could be solved with the right policy treatment. (For example, limiting depositors to natural persons and paying a lower interest rate on reserves.) [1] https://www.bloomberg.com/opinion/articles/2019-03-08/the-fed-versus-the-narrow-bank https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...
  - fallingknife 4y ago
    And that reasoning is that it's a backdoor subsidy to the banks, and an actual interest rate, which is kind of my original point.
- everfree 4y ago
  Or invest directly in federal government obligations through a federal money market mutual fund, even. That way there's no bank in the middle trying to undercut you on rates. Instead, you more or less receive the fed's rate directly.
readthenotes1 4y ago
Good read. I know that because it's confusing... I'm curious how banks like Amex and such provide interest comparable to the Fed rate. Less profit, or higher risk?

gruez 4y ago

>The Fed is currently paying banks 4.9% on their reserves (this rate was always 0% before 2008). and they pay you close to 0% on your checking account. Get a better bank then. There's half a dozen that's paying 4.5% or more: https://www.investopedia.com/best-high-yield-savings-accounts-4770633 https://www.investopedia.com/best-high-yield-savings-account... > When some people tried to open a competing bank that would pass through this interest rate to depositors the were denied a license by the Fed (https://www.chicagobooth.edu/review/safest-bank-fed-wont-san https://www.chicagobooth.edu/review/safest-bank-fed-wont-san...). The banking system is pretty much a value destroying subsidy sink at this point. Yet the banks listed above don't seem to have much trouble existing.

JumpCrisscross 4y ago
> people tried to open a competing bank that would pass through this interest rate to depositors the were denied a license by the Fed Matt Levine summarized the Fed's points well [1]. They're sensible reasons, though I suspect they could be solved with the right policy treatment. (For example, limiting depositors to natural persons and paying a lower interest rate on reserves.) [1] https://www.bloomberg.com/opinion/articles/2019-03-08/the-fed-versus-the-narrow-bank https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...
- fallingknife 4y ago
  And that reasoning is that it's a backdoor subsidy to the banks, and an actual interest rate, which is kind of my original point.
everfree 4y ago
Or invest directly in federal government obligations through a federal money market mutual fund, even. That way there's no bank in the middle trying to undercut you on rates. Instead, you more or less receive the fed's rate directly.

readthenotes1 4y ago

Good read. I know that because it's confusing... I'm curious how banks like Amex and such provide interest comparable to the Fed rate. Less profit, or higher risk?