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Has the FED changed reserve requirements during the financial crisis?
- Thread starter Vasse
- Start date
there was nothing they really could do with reserve requirements. The problem during the financial crisis a year ago was a lack of liquidity. Banks were unwilling to lend money. No one could get credit becuase no one was willing to extend any. All banks kept as much cash as they could because they were worried about not getting repaid. RR serve to make sure banks don't over lend. In other words, the fed can restrict the supply of credit by increasing rr, but they can't make banks lend more by decreasing the rr--that is, unless banks are lending up to rr and WANT to lend more. Banks are not required to lend up to the rr, they are required not to lend beyond the rr.
there was nothing they really could do with reserve requirements. The problem during the financial crisis a year ago was a lack of liquidity. Banks were unwilling to lend money. No one could get credit becuase no one was willing to extend any. All banks kept as much cash as they could because they were worried about not getting repaid. RR serve to make sure banks don't over lend. In other words, the fed can restrict the supply of credit by increasing rr, but they can't make banks lend more by decreasing the rr--that is, unless banks are lending up to rr and WANT to lend more. Banks are not required to lend up to the rr, they are required not to lend beyond the rr.
there was nothing they really could do with reserve requirements. The problem during the financial crisis a year ago was a lack of liquidity. Banks were unwilling to lend money. No one could get credit becuase no one was willing to extend any. All banks kept as much cash as they could because they were worried about not getting repaid. RR serve to make sure banks don't over lend. In other words, the fed can restrict the supply of credit by increasing rr, but they can't make banks lend more by decreasing the rr--that is, unless banks are lending up to rr and WANT to lend more. Banks are not required to lend up to the rr, they are required not to lend beyond the rr.
there was nothing they really could do with reserve requirements. The problem during the financial crisis a year ago was a lack of liquidity. Banks were unwilling to lend money. No one could get credit becuase no one was willing to extend any. All banks kept as much cash as they could because they were worried about not getting repaid. RR serve to make sure banks don't over lend. In other words, the fed can restrict the supply of credit by increasing rr, but they can't make banks lend more by decreasing the rr--that is, unless banks are lending up to rr and WANT to lend more. Banks are not required to lend up to the rr, they are required not to lend beyond the rr.