With the caveat that I’m by no means an economist...<p>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.<p>Presumably this will give late banks desperately needed liquidity and ability to lend, but it also increases systemic risk. Desperate times these are indeed, but this is an unprecedented measure.
Yikes, 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.<p>I'd rather see highly leveraged companies go under quickly, rather than postponing it. A small bang now is less bad than a massive explosion later.
There's a point where:
1)traditional policy tools are ineffective because as rates get to zero, cutting them doesn't really provide any kind of incentive any more
2)interventions get more and more extreme and reach the point where they actually can increase panic rather than reduce it<p>It's pretty clear we're well past #1 and could be at #2.<p>The problem that policy-makers are facing here is the real economic impact of this crisis as unknowable but is very likely to be very large. So it's hard to incentivise lending.<p>For example if you're a bank in this environment it's pretty tough to have the courage to go out and lend to small businesses knowing the next few months are going to be brutal for their cashflow. The fed is going to have some difficulty convincing them to lend even in the presence of a zero reserve requirement ratio given that those banks will look at very serious potential writedowns on their loans in any downside scenario.
The Fed has been obsessed with liquidity since this crisis has hit. From a high level, I understand why but this coupled with the repo market issues we've been having on and off for the past six months or so, the mortgage markets gumming up (avg 30Y mortgage rate went _up_ after the Fed cut rates), potential strain on dollars in the currency markets (lots of demand from foreign countries, no supply? Unsure about this one) make me think that something else is afoot that we're missing here.<p>Of course it could be as they say, and there are a bunch of overlevered businesses that need cheap capital or they'll go bust and cutting interest rates and injecting liquidity is the only way to save them.
For net transaction accounts, <i>i.e.</i> “demand deposits, automatic transfer service (ATS) accounts, NOW accounts, share draft accounts, telephone or preauthorized transfer accounts, ineligible bankers acceptances, and obligations issued by affiliates maturing in seven days or less”.<p>This isn’t a wholesale elimination of reserve requirements.
It would seem that the logical response to this announcement is go run the banks right now, before March 26, and before anyone on Fox and Friends thinks to mention to their viewers what this really means.
With most of currency being digital, this change of reserve ratio requirements has almost no effect in the way banking and economy works. Added a Wikipedia reference which has more references to empirical studies.<p>“ Many economists and bankers now realize that the amount of money in circulation is limited only by the demand for loans, not by reserve requirements.”<p><a href="https://en.wikipedia.org/wiki/Money_creation#Credit_theory_of_money" rel="nofollow">https://en.wikipedia.org/wiki/Money_creation#Credit_theory_o...</a>
it will be absolutely great for the economy, rocket fuel, for about 5 years. Eventually will lead to some insane fundamental that will require a bail out.
I am no economist. What is being solved here? Allowing loans? Who will take out loans in the economy as it is?<p>I'd think a reserve at the banks is a good protection of solvency, and should be increased instead of decreased. Is my layman interpretation completely wrong? It feels like they ran out of bullets and have thrown the gun.
I am worried this could be a precursor to a bank run and possible wide-scale insolvency of banks.<p>I assume that someone will explain why I am an idiot and have no reason to worry.
Probably a good step but it won't have much effect. Lending today is primarily limited by lack of credit-worthy borrowers, not by reserve requirements.
One day people are going to look back to today and wonder why we have essentially given a license to print money to a privileged group of people with close to nil accountability. First to central bankers, and now to private bankers (which collect a profit from literally creating money out of thin air and lending it out). Our entire fiat monetary system really is incredibly bizarre and borderline fraudulent when you think about it in close enough detail, and yet it is still seemingly immune from mainstream criticism.<p>End central banking and you've single-handedly fixed systemic wealth inequality in the United States.