Banks have $3T of regulatory required reserve assets getting IOR and $4.5T of regulatory required HQLA govt securities... if they get this 4% minimum on this $7.5T of regulatory assets (QT will albeit reduce this slightly by then) that would be $300B annual in revenues to US banks for doing nothing other than complying with government regulations…. Up from 0 at ZIRP very recently…
And Fed has over $2T in RRP paying about the same rate so that would be another $80B annual to somebody…. Then there all the T-Bills somebody has…
Would be a major positive fiscal adjustment… probably near $1T annual or so…
FED'S MESTER: WE WANT TO SEE US RATES ABOVE 4% NEXT YEAR.
— Breaking Market News ⚡️ (@financialjuice) June 29, 2022
"And Fed has over $2T in RRP paying about the same rate so that would be another $80B annual to somebody…. Then there all the T-Bills somebody has…"
ReplyDeleteWhat's bizarre about the RRP is that it is overnight and is essentially a higher overnight rate to a wider selection of participants than reserves.
So why not just let the wider participants have a reserve account so the floor stays in place?
It's a bizarre combo of OMO and interest rate payments.
What's bizarre is that the Fed's own rules force them to concoct new facilities to avoid throwing the banking system in violation of the rules.
ReplyDeletePocahontas wouldn’t approve the permanent exemption of reserves so they started the RRP to divert USD savings into those accounts by specially created mutual funds… now at over 2.2T ..
ReplyDeleteBut Neil they have the RRP set about 0.1% LESS than IOR at this point… so it’s cheaper for Fed to pay RRP than IOR so this makes me hopeful that the upcoming QT will prioritize reduction of reserve assets at the depositories and less so a reduction of the RRP…
as that would be “less money!” Fed would have to pay…
Would be better for credit creation…
Pocahontas Art Degree…
ReplyDelete