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Why is the US injecting billions of dollars every day into the market?
The Federal reserve injecting billions of dollars every day into the market. What is wrong with the stock market?
Fed to conduct repo operation again tomorrow, will inject up to $75B into money markets
What is this repo or quantitative easing? Some thing is wrong with the stock market?
This has nothing to do with the stock market. This has to do with money markets and more specifically legal reserve requirements.
Banks have legal reserve requirements. In the decades before 2008, banks routinely traded overnight and other short-term deposits with each other to meet their legal reserve requirements.
Starting in the 1980s, banks have competed with other financial institutions (e.g. money market funds) for customer deposits; challenges to raking in customer deposits accelerated in the 1990s, and climaxed in 2008 as a result of cockamamie credit policies.
Now banks have little scope for raking in new organic customer deposits and the wholesale money markets are still severely impaired more than 10 years after the collapse in 2008. Today, in my view at least, banks are largely payments processing centers, but otherwise zombies with relatively little other role in the economy.
They still have legal reserve requirements and so the Federal Reserve steps in to provide them since banks cannot provide them to each other for lack of new organic deposits and the still impaired wholesale money market system; if the Fed did not intervene in the short-term interbank money market, our entire bank-based payments system would break down too.
The above is highly summarized and simplified, I hope it helps a little.
banks create money through our banking process ... so they have a big roll to play . money is the blood of every corporation along with the bond market
Banks' ability to create money through customer deposits has been diminishing at various rates for decades. As mentioned, the bond market, and wholesale money markets, have superseded banks.
Still, banks play a vital role, especially in the payments system, yes, a major component in the lifeblood of the economy.
Quote:
Originally Posted by Bubble99
But why are banks holding higher levels of reserves?
And what are these new liquidity rules that are affecting banks and causing the banks to hold higher levels of reserves?
I don't recall anyone mentioning higher levels of reserves; my impression is that banks are having difficulty in maintaining current reserve requirements.
However, reserve requirement do change, but the rules and math are very complex, beyond the scope of a forum designed for quick quips and gross summaries on the fly.
You would need to study Basel III rules, I believe, as well as Federal Reserve application of those rules and its own rules.
Banks' ability to create money through customer deposits has been diminishing at various rates for decades. As mentioned, the bond market, and wholesale money markets, have superseded banks.
Still, banks play a vital role, especially in the payments system, yes, a major component in the lifeblood of the economy.
I don't recall anyone mentioning higher levels of reserves; my impression is that banks are having difficulty in maintaining current reserve requirements.
However, reserve requirement do change, but the rules and math are very complex, beyond the scope of a forum designed for quick quips and gross summaries on the fly.
You would need to study Basel III rules, I believe, as well as Federal Reserve application of those rules and its own rules.
Good luck wading through that!
Banks no longer need customer deposits to make loans. Loans create deposits.
Since the 2008 crash banks have gross excess reserves secondary to QE's. And they get paid a bit to hold those reserves.
This is crazy that the US government is giving free money to investors and stock holders. To keep the stock market up.
All this free money when the US has major debt.
The Fed is separate from the US Gov't.
The Fed isn't giving money to investors, it is using money policy to help inflate stocks.
The Fed can create money from thin air, usually used to swap for debt paper. (QE's)
But so far the Fed is not creating money for the purpose of paying off National Debt.
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