Fed's Proposal Would Ease Bank Reserve Requirements

By McCONNELL, Bill | American Banker, November 6, 1997 | Go to article overview

Fed's Proposal Would Ease Bank Reserve Requirements


McCONNELL, Bill, American Banker


Seeking to reduce the volatility of short-term interest rates, the Federal Reserve Board on Wednesday proposed making it easier for banks to meet reserve requirements.

Under the Fed's plan, banks would use deposit figures that are 17 days old to compute their required reserves. Right now, current deposit levels are used.

Fed officials said the explosive growth of retail sweep accounts has made it increasingly difficult for banks to accurately peg reserve levels. As a result, many banks scramble to borrow money at the last minute to meet their reserve requirements. This sudden spike in demand sends overnight rates sky high. The volatility has made it tougher for the Fed to manipulate the overnight rate to control the economy.

The proposal would eliminate this last minute scramble because banks would know at least two weeks in advance how much money they need to keep in reserve.

The proposal received widespread support. "Banks will know exactly what their target is," said Bert Ely, president of Alexandria, Va., consulting firm Ely & Co. "It should ease borrowing from the Fed and reduce volatility in the Fed funds rate."

Federal Reserve Board Vice Chairman Alice M. Rivlin described the plan as a "fairly sensible thing to do."

Every other Wednesday, a bank sets reserve levels based on its average deposit levels over a two-week span. Banks now rely on estimates to set their initial reserve levels. If their estimates are wrong, banks borrow money to boost reserves.

If approved, the proposal would take effect in July 1998. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Fed's Proposal Would Ease Bank Reserve Requirements
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.