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Author Topic: What exactly is the reserve requirement?  (Read 704 times)
theonewhowaskazu
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November 01, 2013, 11:14:17 PM
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In the UK, I understand that there is no reserve requirement on any accounts, however most banks keep reserves with the Bank of England anyway because the Bank of England has began a policy of paying interest on reserves (where does the interest come from, does it, in turn, re-lend the money?)

But what about the US? There supposedly is a reserve requirement of up to 10% on "net transaction accounts", and there is no reserve requirement on any other type of account. Now, here's the apparent definition of a net transaction account:

Quote
Total transaction accounts consists of demand deposits, automatic transfer service (ATS) accounts, NOW accounts, share draft accounts, telephone or preauthorized transfer accounts, ineligible bankers acceptances, and obligations issued by affiliates maturing in seven days or less. Net transaction accounts are total transaction accounts less amounts due from other depository institutions and less cash items in the process of collection.

 Huh Huh Huh

Can somebody please translate?

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BitchicksHusband
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November 02, 2013, 12:16:29 AM
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Here's a good article.  According to the article, since the banks now fulfill this "requirement" by borrowing the money short-term every night  Shocked , it in essence doesn't exist:

https://en.wikipedia.org/wiki/Reserve_requirement

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theonewhowaskazu
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November 02, 2013, 04:02:51 AM
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Here's a good article.  According to the article, since the banks now fulfill this "requirement" by borrowing the money short-term every night  Shocked , it in essence doesn't exist:

https://en.wikipedia.org/wiki/Reserve_requirement

I read that, that's where I got the info in the OP. CDs don't have a reserve requirement anyway, and neither do brokerage products. The question is what is a "net transactions account". Do money market checking accounts fall into that category, for example?  Or just normal checking accounts? How about savings accounts?

benjamindees
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November 02, 2013, 08:29:31 AM
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In my (lay) understanding, the reserve requirement is still nominally 10%, but it was found in 2008 that most banks use copious amounts of accounting fraud to ignore this.  Instead of enforcing the reserve requirement, they just legalized the accounting fraud.

http://www.federalreserve.gov/monetarypolicy/reservereq.htm

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