Read more on this subject: Federal Reserve
News Story Source: https://www.zerohedge.com, by Elliott Middleton
This practice was introduced as a taxpayer-funded subsidy to the banks during the crisis (taxpayer-funded because the Fed turns over any profit at the end of the year to the Treasury).
After beginning this practice, the Fed's chief trader, Simon Potter, realized it could be used to raise interest rates without expelling excess reserves from the Fed, by sucking liquidity out of the short-term markets. In fall 2015, it began raising the interest rate on excess reserves, with the anticipated effect.
At a current rate of about $36 billion a year, this is a cost to the Treasury that is indefensible. This amount is about half the budget for food stamps, for example, which politicians want to cut. There is no provision for these funds ever to be paid back. It is welfare for the bankers.
If the banks had been required to take excess reserves back onto their books it would have required financial disclosure of their quality, which is probably toxic for many. However, with the Finan
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