Bank reserve around the world, measures their economy and monetary policy?
Japan has the highest reserve at 18 to one yen of central bank loan to deposit ratio. Japanese real estate bust was fixed by refurbishing their buildings to increase value and occupancy rate.
China is now around 8.33 RMB to one RMB deposit in the bank. Chinese central bank may try to experiment micro tightening of liquidity(mistakes of running top down economy instead of micro management done in the US). Carelessness will result in local areas going into real recession. Banks must use corporate surplus deposits for individual customer loans.
The comparison shows the liquidity in local loans, the member banks can do. When US feds had ratio of 6. Banks often had no money to loan to customers. Greenspan had to use coupons to deposit in banks, to raise the capacity to loan to customers. It worked for a while, until ratio was raised to 10, in 1991 by then speaker of the house Tom Foley. It changed the monetary policy to make US having one of the highest standards of living. Banks have been comfortable with a ratio of 10, since then. But in recent 10 years, Banks buying treasury from Goldman Sachs had more frequent repos by Feds to ease liquidity crunch; especially after 2001, when banks' investment on equity suffered big losses, which current volatility is seen also as pending danger.
Greenspan had focused on Housing mortgage and interest rates, after 2001 economical mini recession, caused by 6.7 interest rate. Now, Wall street is having the jitters. Feds can ride out the jitters, with a steady hand, and the ratio of deposits to overnight discount loans will be the key, bank by bank. We will have 16 $billion ready in October at the overnight discount window.
Currently, Feds should be considering ratios(bank reserve) of 12 to 15 for the economy to expand? |
