Not much economics but

[solarbird]

Over the last two weeks, the banks needed to borrow an additional US$40B to meet reserve requirements (for some value of "reserves" which can be described as "money borrowed from the Fed"), bringing the total bank non-borrowed reserve figure to a dizzying, terrifying, and utterly unprecedented US$-101,385,000,000. (That's negative, again.)

Date	Total	Nonborrowed	Required	Monetary base
Apr. 9p	42565	-101385	40329	831666

Comments

[avram]

"You're thinking of this place all wrong. As if I had the money back in a safe. The money's not here. Your money's in Joe's house...right next to yours. And in the Kennedy house, and Mrs. Macklin's house, and a hundred others. ... Now what are you going to do? Foreclose on them?"

[solarbird]

I'm not sure of the point you're making here.

[(Anonymous)]

It's a line from "It's a wonderful life", during the bank run when people are trying to get their money out of all the banks in town. The main character makes a speech explaining why the bank "doesn't have the money" to give to people during the run.

I'm guessing the point is that the money isn't there, and it all comes down to "the call". If people start rushing to get their money, the game's up because the banks don't have it. The money is invested in abstract transactions having to do with things like home loans and...oh wait, uh, not good.

But hey Solar, you've been posting that "currency" hit points thing a couple of times now. Maybe when you recover from your strep, you could explain that report a little more and give it some perspective. Is it a bad thing that there's such a negative, or is that standard operations over a period of time?

- paul

[solarbird]

Yeah, but that's vault cash, not reserves. Vault cash is fine, and is what you hand over to customers who come in looking for withdrawals. Reserves are money and 100%-secure monetary instruments (e.g., government bonds, which aren't going away until and unless the government collapses) which you hold against losses in your investment portfolio. This number being -US$100B means that the banks as a class are bankrupt without massive, and I mean massive, Federal support. Neither these numbers nor anything like them have ever been seen before in the history of record keeping on this subject. No lie.

[(Anonymous)]

Whoa, wait a minute. You're saying the reserves are negative? That means if there's a run on the banking system it collapses unless the fed (that is, the public) bails them out. Hard to predict localized runs, which might be managed. But where is all that reserve money? Who emptied the portfolio?

So how much has the fed got? If it bails these banks out, that's the largest upward redistribution of wealth you'd see short of the government defaulting on bonds.

- paul

[solarbird]

Whoa, wait a minute. You're saying the reserves are negative?
Yes, for nonborrowed reserves. That's what those minus signs mean.

Reserves, of course, are never supposed to be borrowed money. They're your reserves against losses. they're supposed to be cash or cash-secure-grade instruments.

Currently, they are loans from the fed. Reserve requirements are met if you included "borrowed" money from the Fed. But that's borrowed money, which must be repaid.

The Fed has somewhere around $800B in capital, of which around half has been lent out through various channels, some small amount being the traditional discount window, but the rest through new, and in some cases secret-to-us, alternative windows, such as the TAF. (By secret-to-us, I mean we don't know who is borrowing how much. With the discount window, that data is public.)

[(Anonymous)]

Thanks solarbird. That helps it make more sense to me. You have a knack for this kind of info!

- paul