Free Money Calculation: Fed Will Give $36.93 Billion of Taxpayer Money to Banks
|The Fed upped the interest it pays on excess reserves to 1.95% today. This is free money (taxpayer funded) to banks. The Fed bumped up the interest it pays on excess reserves today to 1.95%. Currently, excess reserves sit at $1.894 trillion. The math is simple enough. At the current rate, the Fed will hand over approximately $36.93 billion of taxpayer money to banks. That assumes the status quo, but things will change. Factors The first point acts to reduce free money, the second acts to increase free money. Note to ECB If you want to recapitalize Italian banks, just give them free money instead of your profit-reducing policy of holding rates negative. Taxpayer money? Yes! Otherwise the Fed would return this money to the US Treasury. Some claim free money is paying banks to not lend. The claim is fallacious. Banks do not lend from excess reserves. For discussion, please see Free Money! Banks Paid $22 Billion to Not Lend? That was the amount I calculated on April 17, 2017. Interest then was 1.0%. Even though the Fed's balance sheet is lower, the increased rate bumped up the free money calculation to $36.93 billion. No Outrage! Why isn't $36.93 billion in free money to banks an outrage?
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