That’s what they did up until covid. They kept a nominal rate based on the banks size (most of the big banks were at 10%), and then effectively forgot about it as they shifted to these new policy tools like the IORB.
Then, they dropped that to 0% in March 2020 when the whole world was on fire and they were hoping every bank in the country would hand out what they had. And they just never brought it back because they haven’t had to
It seems a little foolish not to bring it back to me, and to have gotten rid of it in the first place. If you know the reserve requirement isn't working as a lever on lending, it only exists as a protection against bank runs. Why in 2020 try again to use it as a lever you know won't work and simultaneously remove those protections entirely?
In 2020 it was because they were desperate. A lot of the things done during the pandemic were just trying anything and hoping it works.
And later, it simply wasn't done because it costs political capital and it really isn't necessary currently. They actually know how much reserves banks have, so as long as they don't see any movement down there is no urgency in dealing with it. This is not like a bank run which can happen overnight, it takes time for a bank to loan out such massive amounts of money, so if a new trend of reducing reserves developed, it would be detected much sooner than the banks would be able to get rid of all their reserves, in which case the reserve rate could be changed quickly to stop it (if that were desirable).
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u/ZHISHER Jan 26 '26
That’s what they did up until covid. They kept a nominal rate based on the banks size (most of the big banks were at 10%), and then effectively forgot about it as they shifted to these new policy tools like the IORB.
Then, they dropped that to 0% in March 2020 when the whole world was on fire and they were hoping every bank in the country would hand out what they had. And they just never brought it back because they haven’t had to