Bernanke Wants to End Bank Reserve Requirements Completely: Chaos?

03-23-2010 • GlobalEconomicAnalysis.blogspot.com

All Bernanke is doing is making a proposal to change the official policy so that it matches the current state of affairs. In simple terms, the proposal will change nothing. Current State Of Affairs Review There are no reserve requirements on savings accounts right now. So in regards to a savings account question: What has changed? The answer is "Nothing". There are reserve requirements on checking accounts, but you have to take into consideration the fact that Greenspan allowed sweeps in 1994. Sweeps allow banks to move (sweep) money from checking accounts into savings instruments nightly (unbeknown to customers who think the money is really there in their checking accounts). As I have pointed out many times already, the money is simply not there. Once Greenspan allowed banks to sweep, banks did so in mass, and the end result is there are essentially no reserve requirements on checking accounts either. The bottom lines is banks will continue to do what they have done since 1994, and that is to keep enough reserves on hand to meet estimated withdrawals. So in regards to checking accounts: What has changed? The answer once again is "Nothing". In essence, all the Bernanke proposal does is eliminate the need for banks to sweep and to keep an accounting of those sweeps.