tag:blogger.com,1999:blog-8507267003129255315.post6477400583958274281..comments2024-02-05T01:08:25.857-08:00Comments on Krazy Economy: "Eliminating Reserve Requirements"C.W.http://www.blogger.com/profile/16478139107745117649noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-8507267003129255315.post-32774711089553651582010-03-27T16:39:12.962-07:002010-03-27T16:39:12.962-07:00The deposits that a bank keeps at the Federal Rese...The deposits that a bank keeps at the Federal Reserve are not shown as "reserves" on the liability side of the balance sheet. Traditionally, they are shown under "Cash"; however they may also appear under "Short Term Investments" as the fed now pays interest on them. Either way, the bank shows its Fed Deposits as an asset.Realist Theoristhttps://www.blogger.com/profile/02443210652365042245noreply@blogger.comtag:blogger.com,1999:blog-8507267003129255315.post-51667716058160790582010-03-23T10:11:53.916-07:002010-03-23T10:11:53.916-07:00Realist Theorist, yes, if you look on the balance ...Realist Theorist, yes, if you look on the balance sheet of a bank, the deposits at the Fed will be listed as a reserve (it is funded from demand deposits, so it is actually a liability). It isn't. My approach in my post was to identify funds that could be used as needed by the bank for the purpose of meeting obligations and withdrawals. The money on deposit at the Fed is frozen and not usable by the bank for any reason other than meeting the legal requirement imposed on the bank by the Federal Reserve Act. If Bernanke's suggestion is put in place, it is quite possible that the funds freed up for the bank may be put into loans, and will no longer be even a fictitious reserve.<br /><br />I realize that the accounting for the items I named does not place them all in the same category. I was not referring to the accounting but the practical issue of the availability of funds for meeting obligations and requirements of depositors, e.g., paying checks that are presented, meeting cash requirements, etc. In that sense both the funds that come from deposits, and thus are liabilities, and assets of the bank, capital and loan-loss reserves, are available for use. Loan-loss reserves are there specifically to replace demand deposits that are lost if a loan goes bad, and thus meet depositor requirements. <br /><br />The issue for a bank today is how to balance its need to make money by loaning out the deposits that it has vs. the potential needs of its depositors, and all of the funds in the bank are oriented around that issue. But the Fed deposit is out of the bank’s hands and unusable.<br /><br />C.W.C.W.https://www.blogger.com/profile/16478139107745117649noreply@blogger.comtag:blogger.com,1999:blog-8507267003129255315.post-55505587914489756462010-03-23T03:27:17.194-07:002010-03-23T03:27:17.194-07:00I disagree with describing those five levels of re...I disagree with describing those five levels of reserves. It mixes things from the Asset side and the Liabilities side of the bank's balance sheet. <br /><br />On the Liability side, the bank has its Capital and its Allowances for Bad debts. The others you mention (Cash on Hand, Digital balances, and government bonds) are methods of holding assets. Both these categories are called "reserves", but they're not the same.<br /><br />Also, the balances at the Fed *are* the digital reserves from the Asset side.Realist Theoristhttps://www.blogger.com/profile/02443210652365042245noreply@blogger.com