How can the interest on reserves be higher than the federal funds rate.

[theonewhowaskazu]

> Federal Reserve paying 0.25% on excess reserves.
> Banks lending reserves to each other at 0.08%.

WTF is going on here.

Sources:
http://www.bloomberg.com/quote/FDFD:IND
http://www.federalreserve.gov/releases/h3/current/

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[redHeadBlunder]

There are two different types of loans, made by two different entities. The amount that can be earned with this spread is so little that many banks do not try to take advantage of this, as they can put their money to better use by lending to consumers who will pay a much higher spread

[theonewhowaskazu]

There are two different types of loans, made by two different entities. The amount that can be earned with this spread is so little that many banks do not try to take advantage of this, as they can put their money to better use by lending to consumers who will pay a much higher spread

?

Federal Funds Rate is the rate at which banks lend reserves to each other.
Interest Rate on reserves is the rate at which banks earn money for having reserves.

Why would you lend reserves when you could get more by not lending them at all? Even if it is a small spread?

[Kluge]

Interbank rate for overnight is very low because the money's effectively useless to banks with a cash surplus over reserve requirements, usually with heavy surplus and not too much demand. It's a pretty-much guaranteed bet and lending the cash has no operational impact on the lending bank, so anything's better than nothing.

ETA: Errr - wait. I didn't know the Fed pays for excess reserves. That changes things. To answer your question, then -- beats me. Maybe it's just a courtesy.

[RoadTrain]

There's a good explanation:

4. The largest lenders in the US overnight unsecured market are not even commercial banks. According to the NY Fed, most overnight liquidity is provided by the Federal Home Loan Banks (FHLBank System), which are government-sponsored entities (h/t Kostas Kalevras  – @kkalev ). Unlike regular US banks, FHLBs receive zero rate on the reserve cash with the Fed. That’s why they tend to lend their cash out to banks overnight at 7-12 bp (which is still better than zero). That is also why the fed funds rate and the overnight LIBOR are significantly lower than the 25bp paid on reserves.

[abrahamlitcoin]

Do you really believe that there is a federal funds?

[RoadTrain]

Thank you for the unrelated gibberish.

[Billbags]

^ I'll try to stay on topic.....

List of institutions that received the most money from the Federal Reserve loaned out with 0% interest and no terms to pay it back. These loans were funded from Dec2007 through June2010 and can be found on page 131 of the GAO Audit and are as follows....remember the bailout was only for 800 billion which you can see is a lie.....

Citigroup: $2.5 trillion ($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)
and many many more including banks in Belgium of all places

0% interest. That doesn't really matter since they are not required to pay it back.

[RoadTrain]

^ I'll try to stay on topic.....

List of institutions that received the most money from the Federal Reserve loaned out with 0% interest and no terms to pay it back. These loans were funded from Dec2007 through June2010 and can be found on page 131 of the GAO Audit and are as follows....remember the bailout was only for 800 billion which you can see is a lie.....

Citigroup: $2.5 trillion ($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)
and many many more including banks in Belgium of all places

0% interest. That doesn't really matter since they are not required to pay it back.

Do you know that these are sums of transaction amounts, not the outstanding balances (which were quite small). In other words, it's just FUD.

[Billbags]

^ I'll try to stay on topic.....

List of institutions that received the most money from the Federal Reserve loaned out with 0% interest and no terms to pay it back. These loans were funded from Dec2007 through June2010 and can be found on page 131 of the GAO Audit and are as follows....remember the bailout was only for 800 billion which you can see is a lie.....

Citigroup: $2.5 trillion ($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)
and many many more including banks in Belgium of all places

0% interest. That doesn't really matter since they are not required to pay it back.

Do you know that these are sums of transaction amounts, not the outstanding balances (which were quite small). In other words, it's just FUD.

If it's FUD i'm sorry, but I got it from the US audit, if this would prove to be wrong I guess the Vermont Senator was misleading the facts and falsifying reports.

This was straight from a US senators report: ( .gov link )

http://www.sanders.senate.gov/newsroom/press-releases/the-fed-audit

This was the report from his senate office:

"The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression."

"As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world."

"The investigation also revealed that the Fed outsourced most of its emergency lending programs to private contractors, many of which also were recipients of extremely low-interest and then-secret loans".

[BTCmoons]

^ I'll try to stay on topic.....

List of institutions that received the most money from the Federal Reserve loaned out with 0% interest and no terms to pay it back. These loans were funded from Dec2007 through June2010 and can be found on page 131 of the GAO Audit and are as follows....remember the bailout was only for 800 billion which you can see is a lie.....

Citigroup: $2.5 trillion ($2,500,000,000,000)
Morgan Stanley: $2.04 trillion ($2,040,000,000,000)
Merrill Lynch: $1.949 trillion ($1,949,000,000,000)
Bank of America: $1.344 trillion ($1,344,000,000,000)
Barclays PLC (United Kingdom): $868 billion ($868,000,000,000)
Bear Sterns: $853 billion ($853,000,000,000)
Goldman Sachs: $814 billion ($814,000,000,000)
Royal Bank of Scotland (UK): $541 billion ($541,000,000,000)
JP Morgan Chase: $391 billion ($391,000,000,000)
Deutsche Bank (Germany): $354 billion ($354,000,000,000)
UBS (Switzerland): $287 billion ($287,000,000,000)
Credit Suisse (Switzerland): $262 billion ($262,000,000,000)
Lehman Brothers: $183 billion ($183,000,000,000)
Bank of Scotland (United Kingdom): $181 billion ($181,000,000,000)
BNP Paribas (France): $175 billion ($175,000,000,000)
and many many more including banks in Belgium of all places

0% interest. That doesn't really matter since they are not required to pay it back.

Do you know that these are sums of transaction amounts, not the outstanding balances (which were quite small). In other words, it's just FUD.

A good point to make is that the loans taken by these institutions generally only last a day or two, and the 0% interest rate policy has lasted for several years. The result is that most of these institutions have borrowed very little at any one time from the federal reserve. Most banks currently have massive amounts of excess reserves so they have little reason to need to borrow from this facility