On Apr 30, 1:13 pm, Lantern <lanter...@[EMAIL PROTECTED]
> wrote:
> On Apr 30, 7:07 am, Money Man <Mo...@[EMAIL PROTECTED]
> wrote:
>
> > visualseep...@[EMAIL PROTECTED]
wrote:
> > > Federal Reserve policymakers will discuss paying interest on
> > > bank reserves in a closed door meeting on Wednesday.>>
>
> Money Man wisely asks some excellent questions.
I agree completely.
Allow me to try to
> answer. I don't know the answers
I don't either, but I've read a couple of books on banking and
economics (so, I know the alphabet) and I've read a lot of books on
scams, frauds, schemes, tricks, tweaks...all designed to make the
rich, richer and the poor, poorer.
but just to get the discussion going
> ----->
>
> 1. What does paying interest on reserves mean? Answer: Banks must set
> aside money to pay depositors when required. Under a fractional
> reserve system, banks can lend out more than they have on hand.
This is true, but I'm not aware that anything like this is going on in
the USA but a WSJ article said that in China as of two years ago, the
Chinese banks were loaning out 140-160% of their deposits AND 50% of
their loans were, at the time, non-performing. Since then, I
understand that they have cleaned up this problem.
There
> are all kinds of controls and laws on this.
I think they come from the Fed.
The idea is to prevent a
> run on banks.
No, you prevent a run on banks by doing something even simpler. They
call it a "bank holiday" and they lock all the doors and tell everyone
(if the bank is FDIC covered) that their money is safe and everyone
goes home until the propeller heads figure out what to do. In recent
times, the Fed organizes a shotgun marriage with stronger banks and
has the stronger bank take over everything, including good assets and
bad loans. The stronger banks don't like to do this, but Bernanke is
now dictator of banks (etc).
The purpose of reserves is to avoid the day when some depositor comes
in and wants to close his account and they tell him "Sorry, we don't
have any money (i.e. cash) here" and then leading to the fireworks and
rumors spreading faster than the speed of light.
> Banks do not get paid interest on their reserves.
No, but they have to get interest income on the loans they make and
that interest has to leave them with net earnings after they pay
interest due to be paid to depositors.
> Reserves must be very, very available, not invested by the bank, like
> vault cash. Why shouldn't they earn interest?
The last time I've seen numbers on this, we're talking about maybe
1-2% of total deposits. Yes, if the bank is a billion dollars bank,
then one percent is 10 mil and they have to froth at the mouth on
that.
However, a lot of bank overlings are greedy-selfish assholes, too, and
don't care that bank solidarity, reputation, and reliability is
im****tant. As I've read a little about this, there are a lot of big
banks doing a lot of little dirty tricks and sneaky-cheaty things and
it gets pretty complicated.
> 2. Who would be paying the interest? The banks would need to put the
> reserves to work. But they must put it to work so that the money is
> available on demand. How do they do this? I dunno :) This may be the
> fly in the ointment.
I'll tell you what banks are doing (one of my banks is doing this),
they are starting to go into all manner of non-bank business. My bank
has offered financial services I've never seen from a bank. In
addition, they are offering "buyer club discount" cards, now (buy the
card, get X % off merchant prices). Also, the latest is a form of
insurance card but its not insurance (or they would run into insurance
regulation), but it is worded in a manner that the "plan" will pay for
health care problems. I'm sure they paid a lot of money to some lawyer
to word their "plan" so it is outside of state insurance regulation
(how many of you knew that Medicaid is not insurance?).
> 3. The banks would be the recipients of any interest they earn. This
> would be an income source banks do not now have.
The question should be: how much money are banks making now and how
well run are those banks.
> 4. The interest rates would be set by whoever the banks can arrange to
> submit their reserves monies to. Probably investors who can use short
> term, readily available monies.
You would have to have a look at the actual wording of the proposal. I
don't remember reading anything in any recent WSJ issue on this
development.
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