Sentences with phrase «on bank reserves»

This is due to its ability to pay interest on bank reserves.
The term of the deposit is currently up to 21 days and the interest rate paid is slightly above the rate paid on bank reserves.
Paying higher interest rates on bank reserves may be one method.
Before going any further I'll note that it isn't just logical deduction that led to my conclusion regarding the purpose of interest - rate payments on bank reserves.
The Fed will get over its fear and make interest rates on bank reserves less attractive.
During the interim, the Federal Reserve indicates that it expects to limit the extent to which banks lend out the base money created in Step 1, through a policy of paying interest on bank reserve balances.
Eventually the Fed settled on an interest - rate target «range,» with the interest rate paid on bank reserves as its upper bound, and a lower bound of zero.
At TSI over the past year and at the TSI Blog two months ago I've made the point that the Fed gave itself the ability to pay interest on bank reserves so that the Fed Funds Rate (FFR) could be raised without the need to shrink bank reserves and the economy - wide money supply.
This is hardly surprising, given that the Fed began paying interest on bank reserves in October 2008 — a move designed to encourage banks to build up excess reserves, instead of increasing lending.
Factors such as the Fed choosing to pay interest on bank reserve deposits, the large cash holdings of big firms, and the persistent regime uncertainty that makes lending / investing seem particularly risky these days can together explain the reluctance of the banks to turn the monetary base into money via the multiplier process.
At the same time, the Fed's expenses, which account for that portion of its earnings that it doesn't pass on to the Treasury, have also grown substantially, mostly owing to its interest payments on bank reserves.
Meanwhile, Bernanke has made it clear that the most important tool of the Fed during the interim will not be liquidation of these securities, but instead the payment of interest on bank reserves.
Instead, when the Fed makes its first rate hike — something that probably won't happen until at least September - 2015 — it will do so by 1) raising the interest rate paid on bank reserves, 2) increasing the amount that it pays to borrow money via Reverse Repurchase agreements, and 3) boosting the rate that it offers to financial institutions for term deposits.
Consequently, on the same day that it announced its plan to pay interest on bank reserves, the Fed at last relented by cutting its rate target to 1.5 percent.
So on October 6th out came the hook, consisting of the Fed's offer to start paying interest on bank reserves.
The purpose of this post is to point out that while the payment of interest on bank reserves is now the Fed's primary tool for implementing rate hikes, there are two other tools that the Fed will use over the years ahead in its efforts to manipulate short - term US interest rates and distort the economy.
Finally, since October 2008, the Fed has been paying interest on bank reserves, at rates generally exceeding the yield on Treasury securities, thereby giving them reason to favor cash reserves over government securities for all their liquidity needs.
These include changing bank reserve requirements by making them higher or lower, changing the terms on which it lends to banks through its discount window, and changing the rate of interest it pays on the bank reserves it has on deposit.
These include changing bank reserve requirements by making them higher or lower, changing the terms on which it lends to banks through its discount window, and changing the rate of interest it pays on the bank reserves it has on deposit.
In practice, monetary policy conducted by paying interest on bank reserves is untested.
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