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AuH20
08-12-2013, 10:15 AM
Propping up foreign institutions and governments as enumerated by the U.S. Constitution!!!! ;):D

http://www.zerohedge.com/news/2013-08-11/where-feds-excess-reserves-are-going-51-foreign-banks-49-domestic

Zippyjuan
08-12-2013, 12:05 PM
duplicate

Zippyjuan
08-12-2013, 12:11 PM
Malicious virus notice from the link but a related article: http://blogs.wsj.com/economics/2013/02/04/foreign-banks-hold-most-excess-reserves-report-contends/
The excess reserves are mostly kept at the Fed anyways- not overseas.

http://blogs.wsj.com/economics/2013/02/04/foreign-banks-hold-most-excess-reserves-report-contends/


The “hot” money so feared by inflation hawks increasingly belongs to foreign banks operating in the U.S.

Stone & McCarthy Research Associates said in a report Monday that in a continuation of a longer-running trend, data suggest that more than 50% of the cash assets held by banks in the U.S. are held by foreign banks operating here.

The report acknowledges interpreting the data released by the Federal Reserve is a bit challenging. But an analysis of what the central bank calls “cash assets” points to the nationality of the banks in question.

Most of these so-called cash assets described in Fed reports are held in the form of reserve balance kept at the central bank, and they currently stand at $1.7 trillion, closely in line with the $1.6 trillion in excess reserves now on the Fed’s ledger, Stone & McCarthy said.

The high level of excess reserves is a hot-button issue. Most of the recent rise has been tied to the Fed’s continuous stimulus program that sees the institution buying $85 billion per month in Treasury and mortgage bonds. Stone & McCarthy notes excess reserves have risen by just over $200 billion between Oct. 3, 2012 and Jan. 30.

For a subset of economists, market participants and other observers, high excess reserves are a source of major anxiety. All observers acknowledge that these funds could flow back into the economy rapidly if the banks that placed the funds on Fed books believed there was a good place to invest this money. If this happened too quickly, the economy would have the potential to overheat, with a resulting surge in inflation that would argue for a sharp tightening in monetary policy.

Fed officials counter this scenario simply isn’t realistic because the Fed has the power to pay interest on excess reserves. If central bankers saw these funds surging back into the economy in a worrisome fashion, the rate of interest on excess reserves could simply be increased, giving banks an incentive to capture the easy and predictable rate of return offered by the central bank.

Stone & McCarthy said that while it isn’t entirely clear why foreign banks are now the majority holder of these excess reserves, there are some reasons why this may be the case.

In the first place, it may come down to the fact that as the Fed buys Treasury and mortgage debt, foreign banks hold a lot of these securities, and are in the position to take the other side of the trade with the central bank.

The firm said it may also be because domestic banks have become on balance lenders to foreign banks, while U.S. branches of foreign banks have become net borrowers from their home operations.

“With the overnight eurodollar rate at around 15 basis points, and the interest paid on bank reserves at 25 bps, a European bank (or any foreign bank) may buy dollars from a foreign branch of a U.S. bank, and have the claim against reserves be transferred to the U.S. branch of such foreign bank, rendering a safe 10 basis points pick up,” the report said.

Meanwhile, “the same opportunistic trade could be made by domestic banks buying reserves in the fed funds market, then parking these reserves at Fed, effectively arbitraging the 10 bps pick up,” Stone & McCarthy said.