Friday, April 30, 2010

Federal Reserve to Create CDs for the Banks

so that the banks don't lend to Main Street.

Another of Bernanke's so-called "exit strategy" has been put in place. Just another way to keep as many excess reserves at the central bank so that the Fed can continue to support its junky balance sheet ($1.2 trillion MBS and agency bonds that no one wants), and to further encourage banks NOT to lend to credit-starved consumers and businesses.

For more details of this new instrument at the Fed, see my post from December 2009.

Fed adopts plan to let banks set up CDs (4/30/2010 AP via Yahoo Finance)

"WASHINGTON (AP) -- The Federal Reserve has adopted a plan allowing banks to set up the equivalent of certificates of deposit at the central bank. The move would help the Fed mop up money pumped out during the financial crisis and prevent inflation from taking off later.

"Under the plan, the Fed would offer so-called "term deposits" that would pay interest. Doing so would provide banks with another incentive to park their money at the Fed, rather than having it flow back into the economy.

"Once the economy is on firm footing, this would be one of the tools the Fed could use to tighten credit.

"The Fed says Friday's action has "no implication for the near term conduct of monetary policy.""


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