The Latest Epicycle in Interest Rate MythologyEvery so often, a new fad emerges to prop up the fantasy that interest rate targeting is some economic panacea. The latest contender? Reserve requirements.The premise is simple: if we stop paying interest on massive excess reserve quantities held by banks, we won’t have to hand over vast sums to them. The stunning amount of intellectual effort required to come to this conclusion is why economists earn the big money. Predictably, it has been seized upon by those Right-Thinking Lefties who detest bank profits but remain wedded to the mystical notion of an all-controlling interest rate.Misunderstanding Banking—AgainSince economists construct their banking theories on layers of myths, they inevitably arrive at the wrong conclusions. Yanis Varoufakis fell into precisely this trap when applying the reserve requirement argument to the UK.So, let’s take a step back and examine reserve requirements in the context of UK banking—without the distortions of mainstream economic dogma....
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The Reserve Requirements Fad: A Solution in Search of a ProblemNeilW
2 comments:
They want to make sure “banks have the money to lend out!”….
Also, US banks might be ready to go back in now to Trump admin to get capital relief on reserve assets previously stonewalled by Biden/Pocahontas:
“Bank industry experts say the rally reflects potential lighter regulations under Trump, particularly on the capital requirements front.
"I think what we want to see is capital [requirements] a little more rational. And then secondly, you want to take a look at some liquidity and other rules which got stacked up and actually have an adverse effect on carrying capital, which doesn't make a lot of sense because some of the other tedious things that go on banking regulation," Moynihan said on what he'd like to see from the Trump administration.”
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