Now Bernanke Wants To Eliminate Reserve Requirements Completely

[Subdivisions]

Up until now, the United States has operated under a "fractional reserve" banking system. Banks have always been required to keep a small fraction of the money deposited with them for a reserve, but were allowed to loan out the rest. But now it turns out that Federal Reserve Chairman Ben Bernanke wants to completely eliminate minimum reserve requirements, which he says "impose costs and distortions on the banking system". At least that is what a footnote to his testimony before the U.S. House of Representatives Committee on Financial Services on February 10th says. So is Bernanke actually proposing that banks should be allowed to have no reserves at all?

That simply does not make any sense. But it is right there in black and white on the Federal Reserve's own website....

The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.

If there were no minimum reserve requirements, what kind of chaos would that lead to in our financial system
? Not that we are operating with sound money now, but is the solution to have no restrictions at all? Of course not.

What in the world is Bernanke thinking?

...snip...

http://www.businessinsider.com/now-bernanke-wants-to-eliminate-reserve-requirements-completely-2010-3



Bye-Bye Bucky?

[NightWatcher]

1. a 4pm Friday payday run might trigger a run on the banks

you three with the oily rags go play with that nice boy with a box of matches.

[Elwood P Dowd]

2. Might be time to stash a little food, gold, silver, and cash for the coming crash.

Like George Carlin said, "They want it all".

[troubledamerican]

8. Cash will be toilet paper. You can't eat gold. Store food, seeds, clothes, fuel

[Electric Monk]

3. Sure, what could possibly go wrong with that?

http://www.youtube.com/results?search_query=money+as+debt+full

[unkachuck]

4. "impose costs and distortions on the banking system"

....no problem Ben, we wouldn't wanna do that....just put it on our tab along with your other solutions....

[Marr]

11. "distortions on the banking system"... where have I heard that language before?

That's right-- the Milton Friedman economists who raped Chile under Pinochet, and the Milton Friedman economists who raped Russia... they always talked about "distortions in the market", and how removing them will magically create wealth. And they just looted everything as the economies spiraled ever downwards.

[RoyGBiv]

5. Several countries already do this ...

England's fractional reserve rate is voluntary, for instance. Canada's rate is 0%.

In addition, even in the US some banks have no reserve requirements. It depends on the value of their transaction accounts. The lower the value, the lower the percentage of reserves required to the point where some are at 0%.

The matter is more complex than it sounds.

I'm not advocating for it, btw, just noting that this is not some idea he pulled from outer space.

[HeresyLives]

10. Canada has 'capital requirements'

which our Finance Minister recently raised.

[Festivito]

12. Bush SEC dropped min requirement in April 2004.

Oddly, the RW press did not write an article about it until October of 2008, a month before the election OVER FOUR YEARS LATER.

When you say other countries do the no min requirement thing, they either do have other regulating means or they are not of significance. Name them. And, Canada IS NOT one.

[RoyGBiv]

14. Of course they have other requirements ...

Monetary policy is far more complicated than saying this or that country has this or that policy, distilled into a single point.

Canada did in fact phase out its fractional reserve requirements for private banks as of 1994. They have other modes of controlling monetary policy and bank regulation in place. I will admit this is not something I keep track of on a day to day basis, so it's certainly possibly they've reintroduced it in the last couple years. If they have, I'd be interested in knowing what the rate is if you happen to have that information handy.

The Bank of England has a more complex system which effectively eliminates reserve requirements for individual banks, but, yes, there are regulations in place that encourage reserves to be held. This averages out to somewhere around 5%.

The central bank of Switzerland is even more complex in the way it deals with monetary policy, and they do have a reserve requirement, but it changes constantly and remains in the <5% range.

So, yes, other countries whose banking systems have little or no reserve requirement do have complex systems of regulation and monetary policy control. I don't know what anyone suggested they did not nor that the US would abandon all banking regulation were it to eliminate reserve requirements on the accounts that still maintain one.

My only point was, as I said, that this is not a brand new idea pulled out of thin air that signals the birth of the anti-Christ. It's an issue that could be studied and discussion in a reasonable manner and in fact has been for decades.

And, again, I'm not suggesting I support the idea, but frankly the mere mention of it doesn't instill in me any enormous fear. The current reserve requirements are so low that it hardly matters to small depositors.

[Festivito]

15. If there is no minimum or no regulation it could mushroom to 600T$!

Oh, that's right. It has already.

So, we have say, three times the entire world's total wealth in US derivative created currency. What could go wrong?

[LiberalFighter]

6. When are they going to ban these people from making decisions?

I'm trying to be nice.

[girl gone mad]

7. Then they should agree to not another dime in bailout money. n/t

[starroute]

9. Don't trust anyone who uses the word "distortions"

It's extremist free-market rhetoric and tends to mean "anything that prevents us from playing games with other people's money."

[Festivito]

13. I'm thinking he's already done it and should go to jail.

Eviscerating him, his family, friends, associates and anyone with similar DNA would not be enough of a punishment for what might already be done. Instead, he might get bailed out and endure a strongly worded letter.

[annabanana]

16. Wait.. WHAT?.. It seems to me (uninitiated though I am),

that it is the reserves, specifically that keep the "distortions" OUT of the banking system.

No? Someone explain to me why I'm wrong.