WHY ARE BANKS HOLDING EXCESS RESERVES?
18 December 2009 by Cullen Roche
3 Comments
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Comments
all is fine but there is no reason Bank B would be happy keeping extra deposits. Drop interest on deposits and the issue is solved. Anybody who has any idea about real business of banking (and not only) knows that all companies larger than one office employ some type of FTP systems. This paper provides an artificial example which has no relevance for real life.
I will read the piece but I think banks are doing exactly what they should be doing. They see future write downs on the books and are preparing for it. Combine that with a glut of unworthy borrowers or at least sketchy, and what the hell else are they supposed to do.
EArning interest on the reserves is a great way to bolster the balance sheets. I give it a year before a lot of holes are taken care of. And yes Virginia, there will be future equity raises. I still think C might be ok to dip your toe here.
the answer is a couple pages into Koo’s book. It has nothing to do with lenders and everything to do with a lack of borrowers. If the consumer is focused on paying down debt in these hard times, why on earth would they expand their debt load? Are the companies that you all work for aggressively pursuing credit? But maybe this time will end well.