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Strategies & Market Trends : The Financial Collapse of 2001 Unwinding
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To: John Vosilla who wrote (3333)9/19/2019 11:03:33 AM
From: elmatador1 Recommendation

Recommended By
DinoNavarre

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This graph shows you the amount of reserves banks need to have with the Fed (black line), the red line shows how much money banks have at the Fed they didn't need to borrow from the Fed, and the blue is the amount of reserves they have.

Prior to 2008 these 3 lines are on top of each other. This is the normal. Then in 2008 the lines split. Essentially, the US banking system was insolvent from housing losses. (Red line under the black line.) The Fed let banks borrow reserves to stay alive (blue).

By 2011 there were no borrowed reserves, but QE caused excess reserves to soar to $2.5 TRILLION. i.e. the Fed gave $2.5T to the banks and they stuffed it under their mattresses.

Today, even after Fed has been shrinking the balance sheet, Banks still have over $1.4T excess non-borrowed reserves. i.e. They have plenty of cushion.

So what's the problem?

Due to the debt ceiling issue and some other bills coming due at the same time, the banks need some cash while waiting for some checks to clear to cover their bills. It's a liquidity probably not a solvency problem.





Associate Professor of Finance and Faculty Director of Center for Investment and Wealth Management (CIWM) at UC Irvine

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