For the First Time, the Fed Is Losing Money

Re:For the First Time, the Fed Is Losing Money by jongjong on Tuesday March 28, 2023 @07:34AM (#35339036)

This doesn't add up. Why would they implement such mechanism if it couldn't be converted into dollars somehow? Are you suggesting that the Fed and all the banks would waste their time playing around with fake monopoly money which has no relation and no effect on USD supply whatsoever just to confuse people and crease confidence. This is way too far-fetched. It makes conspiracy theories seem reasonable.

And in any case, didn't they lower the reserve requirement to 0 at the start of the pandemic?

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Re:For the First Time, the Fed Is Losing Money by neilwilson on Tuesday March 28, 2023 @08:12AM (#35339542)

Banks lend by creating a financial asset (say a mortgage) and the creating an advance against that.

Reassigning that advance to another person is how we pay for things with borrowed money.

Once it has been reassigned it called a deposit.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

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Re:For the First Time, the Fed Is Losing Money by kasey_junk on Tuesday March 28, 2023 @01:31PM (#35344769)

Reserves are one (largely unimportant) brake on lending. Many western central banks have never had a reserve requirement.

The more important limits to lending are regulatory capital controls which measure both the asset to liabilities mix but also the credit and interest rate risk of the asset mix and loan to deposit ratio.

The latter is a commonly tracked metric by bank investors and they typically view a ratio of higher than 0.8 with suspicion (down from 0.9 post 2008).

The US banking industry ratio is about .63 right now which is up from a pandemic low of .57 but still down from the pre-pandemic ratio of .75.

That banks were not lending enough was the reason the fed removed the reserve requirement.

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