Bank Directors Seminar, Coeur d'Alene, ID

Bank’s Excess Reserves

– Depository institutions in the U.S. today are holding about $2000 billion, that is $2 trillion , in excess reserves. – Prior to the financial crisis, depository institutions were quite successful in keeping next to nothing in excess reserves. – In other words, we have never experienced in our financial system that which we are seeing today. – Make sure the “old bankers” in your shop understand the situation regarding the excess reserves at your bank. This is a source of liquidity especially for the big and foreign banks – Banks now have the wherewithal to make new loans without the Fed having to do anything. – This wasn’t the case in the past. – Banks have a financial incentive to lend this money out. They are currently only earning 1.95% on deposits (reserves) held at Federal Reserve banks.