Why Are Banks Holding So Many Excess Reserves?¶
Keister, T., & McAndrews, J. J. (2009). Why Are Banks Holding So Many Excess Reserves?.
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Domain-specific¶
- Money Multiplier
- The reason: the Fed began paying interest on excess reserves in October 2008, which made holding them a competitive asset at the margin, while the aggregate stock of those reserves — roughly $45 billion before the crisis and more than $900 billion by January 2009 — was set by the size of the Fed's own balance sheet rather than by any lending decision, since reserves lent by one bank simply reappear at another and never leave the system
This sourceDates the start of interest on reserves to October 2008 and gives the resulting build-up as roughly $45 billion before the crisis to more than $900 billion by January 2009, arguing that this aggregate is fixed by the size of the Fed's balance sheet and 'in no way reflects the lending behavior of banks' — reserves lent by one bank simply reappear at another and never leave the system.
SupportedVerified against the source
- The reason: the Fed began paying interest on excess reserves in October 2008, which made holding them a competitive asset at the margin, while the aggregate stock of those reserves — roughly $45 billion before the crisis and more than $900 billion by January 2009 — was set by the size of the Fed's own balance sheet rather than by any lending decision, since reserves lent by one bank simply reappear at another and never leave the system
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