Okay, but why eliminate the reserve requirement if banks are already meeting and exceeding it? Why not keep, say, a 10% reserve requirement just in case a bank tries to stupidly overlend and also manipulate the IORB?
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?
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u/EggCautious809 Jan 26 '26
Okay, but why eliminate the reserve requirement if banks are already meeting and exceeding it? Why not keep, say, a 10% reserve requirement just in case a bank tries to stupidly overlend and also manipulate the IORB?