The Fed reduced reserve requirements from 10% on demand deposits to 0% (up to $11M) on 29-Dec-11. Missed that one.

[Ann Tulintseff]

Are folks aware that the Fed reduced the reserve requirement on demand
deposits (up to $11 million) from 10% to 0%, effective 10 months ago
on 29-Dec-11.

Is this old news? Do folks know why?

http://www.federalreserve.gov/monetarypolicy/reservereq.htm

http://www.frbservices.org/files/regulations/pdf/rmm.pdf
The July 2012 version of this manual has been updated to reflect the
implementation of two
simplifications to reserve administration by the Federal Reserve. The
two simplifications are the discontinuance of as-of adjustments
related to deposit report revisions, and replacement of all other
as-of adjustments with direct compensation, and the elimination of the
contractual clearing balance program. These two simplifications were
implemented with an effective date of July 12, 2012. For more
information on the simplifications initiative, please visit the
Reserve Administration Enhancements Resource Center on the Federal
Reserve Bank Services website.

[George Chandler]

Does this mean that the need for reserves no longer exsists? If there is a run on the banks ......???

[Ann Tulintseff]

Banks still need sufficient reserves to conduct customer transactions
of check clearing and demands for cash. But, beyond that, no
requirements for deposits less than $11M.

I believe other countries have similar 0% reserve requirements...I'm
just curious about the timing, etc.

[Robert Thompson]

The reserve requirements to which you refer are simply revisions to the previous reserve requirements imposed on small, medium and large banks and thrifts.  The article from William Hummel's website describes the previous ranges of aggregate demand deposits, and the required reserve requirements associated with each range - conceptually nothing has changed.

Here's a link:  http://wfhummel.cnchost.com/bankreserves.html

Vr/RBT

Robert Thompson

rbthom...@earthlink.net

[helge nome]

As far as I know, there is no formal/legal requirement for banks here in Canada to have reserves on hand.
However, the ones I know about, ATB Financial (capital: C$25 billion)  and the Rocky Credit Union (capital: 250 million) carry about 10% and 8% reserves respectively.
And they also need to have funds in care of the Bank of Canada to cover day to day transactions, as all banks do.

Helge

> Date: Fri, 12 Oct 2012 12:47:55 -0700
> Subject: Re: The Fed reduced reserve requirements from 10% on demand deposits to 0% (up to $11M) on 29-Dec-11. Missed that one.
> From: anni...@gmail.com
> To: understan...@googlegroups.com

[William Hummel]

Ann, you may have misinterpreted the reserve requirements. They are based on a bank's deposit liabilities, not on the size of individual customer deposits. The requirement on the first 11.5 million of a bank's demand deposits liabilities is zero. The requirement on the next 59.5 (71.0 - 11.5) million is 3 percent. The requirement on any amount above 71.0 million is 10 percent. That means the first 71.0 million of demand deposit liabilities held a by bank have an effective reserve requirement less than 10 percent.

 

This progressive requirement (0, 3, 10) on reserves has been in effect for many years. Every year or two, the Fed raises the breakpoints on deposit liabilities by a small amount, the last time in 12-29-11. Here are the current requirements in the reference you cited:

 

Reserve Requirements
Liability Type  Requirement
% of liabilities  Effective date
Net transaction accounts
     $0 to $11.5 million  0  12-29-11
     More than $11.5 million to $71.0 million  3  12-29-11
     More than $71.0 million  10  12-29-11
Nonpersonal time deposits  0  12-27-90
Eurocurrency liabilities  0  12-27-90

 

William

[Ann Tulintseff]

Thanks, William, for pointing that out.
I mis-remembered what I had read the reserve requirements to be. Here's the announcement on the relatively small modification.
http://www.federalreserve.gov/newsevents/press/bcreg/20111026a.htm

Ann

[George Chandler]

I am confused on bank reserves versus bank capital. Bank capital requirements are to help prevent insolvency. Bank reserves are to help mitigate "runs" ?

[John Hermann]

Banking reserve requirements are intended to help preserve bank liquidity.  The latter refers to the ability of a bank to meet the requirements of its liabilities under all conceivable circumstances.  This includes, in particular, payment of its depositors in legal tender - should that be demanded.  The liquidity of a banking institution is usually measured as the sum total its reserves (exchange settlement funds plus currency held in tills and vaults) plus high quality liquid financial assets - which, by definition, are readily exchangeable with reserves.       John

[George Chandler]

John, how can "high quality liquid financial assets' count towards being ready to withstand a run? About the only thing I see as mitigating a run is vault cash.

[helge nome]

"High quality liquid assets" could include bottles of beer for customers inside the bank?

Helge

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Date: Mon, 15 Oct 2012 11:14:24 -0700
Subject: Re: The Fed reduced reserve requirements from 10% on demand deposits to 0% (up to $11M) on 29-Dec-11. Missed that one.
From: lante...@gmail.com
To: understan...@googlegroups.com

[John Hermann]

Hi George, the answer is that these liquid assets may be rapidly exchanged for excess banking reserves (unlike other assets, such as retail loans, other illiquid assets and investments, and longer-term debt instruments).  In turn, the excess reserves may be used to purchase as much currency as required to satisfy the demand.      John

[Tom Paine II]

single malt whisky, maybe

[George Chandler]

Thanks, John. Can these liquid assets be exchanged for currency fast enough to calm clamoring, anxious depositors?  Like Quick, before they riot? (There was a Countrywide bank near me recently that closed and there was a line about 2 blocks long to get their money.They did get their money ok - but it was not nice.)

[John Hermann]

To Helge:  Presumably the beer would be a gift.  Whether it is an asset is debatable.
To George:  Your knowledge of U.S. banking practices is likely better than mine. Perhaps others can add insight.

On 17/10/2012 3:02 AM, George Chandler wrote:

Thanks, John. Can these liquid assets be exchanged for currency fast enough to calm clamoring, anxious depositors?  Like Quick, before they riot? (There was a Countrywide bank near me recently that closed and there was a line about 2 blocks long to get their money.They did get their money ok - but it was not nice.)

On Mon, Oct 15, 2012 at 10:57 PM, Tom Paine II <t...@tompainetoo.com> wrote:

single malt whisky, maybe

 

From: helge nome

Subject: RE: The Fed reduced reserve requirements from 10% on demand deposits to 0% (up to $11M) on 29-Dec-11. Missed that one.

 

"High quality liquid assets" could include bottles of beer for customers inside the bank?     Helge

---

From: lante...@gmail.com

[Jean Erick]

    You can exchange a greater quanitity of low quality liquid assets (beer) for lesser higher quality liquid assets (liquor).  But the shrewd individual (me, of course) recognizes

 the reality of these liquid asset exchanges involves an equal exchange of alcohol content.

 

James

[helge nome]

I would put a premium on the hops in the beer and its nutritional value.
Actually, rum was at one time legal tender in the British colony of New South Wales in Australia.
The renegades that deposed Captain Bligh (Of Mutiny on the Bounty infamy) from the Governorship of New South Wales
were called the "Rum Corps". Unfortunately their reign was quickly brought to an untimely end by those "pesky poms" (British).

Helge

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From: jean...@sbcglobal.net
To: understan...@googlegroups.com

Subject: Re: The Fed reduced reserve requirements from 10% on demand deposits to 0% (up to $11M) on 29-Dec-11. Missed that one.

Date: Tue, 16 Oct 2012 15:56:46 -0700

[Jean Erick]

     Yes, nutritional value.   LOL.  The nutritional economics of getting sloggered.  ;-)

 

     So, Captain Bligh ended up getting testy again huh?  Was that before or

after the mutiny on the Bounty?

 

      I read the whole trilogy, "Men Against the Sea" and "Pircairn Island".

Looks like there is even more to the story of Capatain Bligh.

[helge nome]

Yes, that was after his feat of getting booted off the Bounty and making the famed voyage back to Timor in an open boat.
He had a knack for making himself unpopular but his great reputation as a naval commander that served his King well
landed him the job of governing New South Wales.

Helge

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From: jean...@sbcglobal.net
To: understan...@googlegroups.com
Subject: Re: The Fed reduced reserve requirements from 10% on demand deposits to 0% (up to $11M) on 29-Dec-11. Missed that one.

Date: Sat, 20 Oct 2012 09:22:37 -0700

[Jean Erick]

     I guess that is similar to what is going on today as he seemed to be

one who liked the tightening of the authoritarian screw.  The economic screw

tightening now.  Only now Captain Bligh is difussed into a beaurocracy that no

one can revolt against.

[helge nome]

A bureaucracy is like a big clumsy elephant.
The way to beat him is to run around his legs, like mice do,
and spook him while they are at it.
Helge

---

From: jean...@sbcglobal.net
To: understan...@googlegroups.com
Subject: Re: The Fed reduced reserve requirements from 10% on demand deposits to 0% (up to $11M) on 29-Dec-11. Missed that one.

Date: Tue, 23 Oct 2012 09:39:15 -0700