Banks Read Fed Minutes, Have a Little Freakout

This alarmed at least two executives at large banks, who expressed their displeasure in anonymous quotes to the Financial Times. Lower the interest rates you pay us on our excess reserves, the bankers said, and we might have to start charging interest on deposits that consumers and corporations hold with us.

They do stand to lose some money. Banks are obliged to hold what are called “required reserves” at the Fed, for most banks about 10 percent of deposits. Right now the Fed holds $77 billion in required reserves, which earn 0.25 percent interest. The Open Market Committee did not contemplate any changes to this. But banks can also choose to hold what’s called “excess reserves” at the Fed. Under quantitative easing, which bought bonds from banks in return for a reserve credit on the Fed’s balance sheet, excess reserves have grown to $2.3 trillion. They, too, earn interest of 0.25 percent.

Read More: www.businessweek.com/articles/2013-11-27/banks-read-fed-minutes-have-a-little-freakout#r=nav-fs