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Bernanke, "Allow the elimination of minimum reserve requirements.

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This (paraphrased) is all over the Internet today -- 4/19/2010
... By Ben Bernanke -- "We can eliminate all minimum reserve requirements" (Google it)

We have news for you Mr. Bernanke -- On 11/25/2009 -- we posted the following -- See #3 at << >> (three months before Bernanke's Statement was written).

"3. Since we have essentially abandoned "reserves" in modern banking (we still use the word "reserves" -- but it no longer has any power or reason for being -- it has no meaningful, enforceable force of law. It is, we think, an obsolete sterile force of antiquity). Our present system would work as well if the required-reserve ratio was anywhere from zero % to 100% -- in fact, it is zero for banks with deposits up to about $10 million. See --PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS (REGULATION D)

By -- Fed. Chairman Ben S. Bernanke
Federal Reserve's exit strategy
Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.
February 10, 2010 (note the date -- mrc)

NOTE from Martin R. Carbone -- Read the last sentence of this report first (In my opinion, everything before that is meaningless fluff which introduces that last sentence) -- Bernanke says -- "The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system".

Well -- duh! See #3 at << >> where we explained, on 11/25/09 (three months before Bernanke's Statement was written.

"3. Since we have essentially abandoned "reserves" in modern banking (we still use the word "reserves" -- but it no longer has any power or reason for being -- it has no meaningful, enforceable force of law. It is, we think, an obsolete sterile force of antiquity). Our present system would work as well if the required-reserve ratio was anywhere from zero % to 100% -- in fact, it is zero for banks with deposits up to about $10 million. See --PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS (REGULATION D)

End of NOTE

This from the Fed.

Statement as prepared for delivery. The hearing was postponed due to inclement weather.

Chairmen Frank and Watt, Ranking Members Baucus and Paul, and other members of the Committee and Subcommittee, I appreciate the opportunity to discuss the Federal Reserve's strategy for exiting from the extraordinary lending and monetary policies that it implemented to combat the financial crisis and support economic activity.

Broadly speaking, the Federal Reserve's response to the crisis and the recession can be divided into two parts. First, our financial system during the past 2-1/2 years has experienced periods of intense panic and dysfunction, during which private short-term funding became difficult or impossible to obtain for many borrowers. The pulling back of private liquidity at times threatened the stability of major financial institutions and markets and severely disrupted normal channels of credit. In its role as liquidity provider of last resort, the Federal Reserve developed a number of programs to provide well-secured, mostly short-term credit to the financial system. These programs, which imposed no cost on the taxpayer, were a critical part of the government's efforts to stabilize the financial system and restart the flow of credit.1 As financial conditions have improved, the Federal Reserve has substantially phased out these lending programs.

Second, after reducing short-term interest rates nearly to zero, the Federal Open Market Committee (FOMC) provided additional monetary policy stimulus through large-scale purchases of Treasury and agency securities. These asset purchases, which had the additional effect of substantially increasing the reserves that depository institutions hold with the Federal Reserve Banks, have helped lower interest rates and spreads in the mortgage market and other key credit markets, thereby promoting economic growth. Although at present the U.S. economy continues to require the support of highly accommodative monetary policies, at some point the Federal Reserve will need to tighten financial conditions by raising short-term interest rates and reducing the quantity of bank reserves outstanding. We have spent considerable effort in developing the tools we will need to remove policy accommodation, and we are fully confident that at the appropriate time we will be able to do so effectively.

Liquidity Programs
With the onset of the crisis in the late summer and fall of 2007, the Federal Reserve aimed to ensure that sound financial institutions had sufficient access to short-term credit to remain sufficiently liquid and able to lend to creditworthy customers, even as private sources of liquidity began to dry up. To improve the access of banks to backup liquidity, the Federal Reserve reduced the spread over the target federal funds rate of the discount rate--the rate at which the Fed lends to depository institutions through its discount window--from 100 basis points to 25 basis points, and extended the maximum maturity of discount window loans, which had generally been limited to overnight, to 90 days.

Many banks, however, were evidently concerned that if they borrowed from the discount window, and that fact somehow became known to market participants, they would be perceived as weak and, consequently, might come under further pressure from creditors. To address this so-called stigma problem, the Federal Reserve created a new discount window program, the Term Auction Facility (TAF). Under the TAF, the Federal Reserve has regularly auctioned large blocks of credit to depository institutions. For various reasons, including the competitive format of the auctions, the TAF has not suffered the stigma of conventional discount window lending and has proved effective for injecting liquidity into the financial system.2

Liquidity pressures in financial markets were not limited to the United States, and intense strains in the global dollar funding markets began to spill over to U.S. markets. In response, the Federal Reserve entered into temporary currency swap agreements with major foreign central banks. Under these agreements, the Federal Reserve provided dollars to foreign central banks in exchange for an equally valued quantity of foreign currency; the foreign central banks, in turn, lent the dollars to banks in their own jurisdictions. The swaps helped reduce stresses in global dollar funding markets, which in turn helped to stabilize U.S. markets. Importantly, the swaps were structured so that the Federal Reserve bore no foreign exchange risk or credit risk.3

As the financial crisis spread, the continuing pullback of private funding contributed to the illiquid and even chaotic conditions in financial markets and prompted runs on various types of financial institutions, including primary dealers and money market mutual funds.4 To arrest these runs and help stabilize the broader financial system, the Federal Reserve used its emergency lending authority under Section 13(3) of the Federal Reserve Act--an authority not used since the Great Depression--to provide short-term backup funding to certain non-depository institutions through a number of temporary facilities.5 For example, in March 2008 the Federal Reserve created the Primary Dealer Credit Facility, which lent to primary dealers on an overnight, overcollateralized basis. Subsequently, the Federal Reserve created facilities that proved effective in helping to stabilize other key institutions and markets, including money market mutual funds, the commercial paper market, and the asset-backed securities market.

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Martin Carbone Social Media Pages: Facebook page url on login Profile not filled in       Twitter page url on login Profile not filled in       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

Retired engineer, product and business developer, inventor (six patents). Currently (a) trying to completely understand our money and banking systems and (b) planning to pass that information to the American public. Photo is ca. (more...)
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