Monday, December 28, 2009

A New Tool for Bernanke

The Federal Reserve wants even another way to drain reserves from the system.

The Federal on Monday proposed amendments to Regulation D (Reserve Requirements of Depository Institutions) that would enable the establishment of a term deposit facility.

Under the proposal, the Federal Reserve Banks would offer interest-bearing term deposits to eligible institutions through an auction mechanism. Term deposits would be one of several tools that the Federal Reserve could employ to drain reserves to support the implementation of monetary policy.


  1. The Fed already overpays to get the excess reserves it already has by paying 25 bps. What do you think they'll have to offer to offset the incumbent duration risk for longer terms? Auctioning is fine, but what if banks demand 2% for a one-year term (or shorter, for that matter)?

    This does not drain reserves from the system! This is only a delaying tactic. After all this talk, this is what they're banking on (no pun intended) to fix this pickle they're in?

    This sounds like desperation to me.

  2. RW,
    what say you to Sprott's supposition that the Fed has hidden +half-trill QEing over the past yr?

    see link

  3. @ annonymous

    The analysis is pretty interesting until the very end when he charges that the Fed has been some kind of phantom buyerwithout proof.

    I see a lot ofgovernmant stats with fudge factors, that's what this appears to me.

    Bottom line: Money is in the money supplyor it is not. I see no evidence this supposed purchases are in the money supply.