10 Years After: Why Does The Fed Still Pay Banks To Park Their Excess Reserves … With Interest?

This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.

The Three Amigos, Jerome Powell, Janet Yellen and Ben Bernanke were in Atlanta today at the American Economics Association annual meetings and gave a collectively bland disussion about current monetary policy.

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One of their tools that was not discussed is that fact that banks started stashing excess reserves with The Fed over ten years ago in 2008. But it is now ten years after and the excess reserves are NOT going home. In fact, they remain at $1.8 trillion.

excessres

The Fed could easily reverse this trend by either setting the interest rate paid on excess reserves to zero … or charge banks to park their excess reserves. In fact, with every Fed rate increase, they pay banks MORE to park their money on the sidelines.

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