kdo

Two Billionaires Concur: Sell the Banks

The lowering of non-borrowed reserves of which leading into this was about $41 billion, coincided with the $40 billion borrowing through the term auction facility. My interpretation is that the banks didn't just burn through their reserves, they've been reclassified because of the term-auction and the fact that the banks have no reason to hold extra any more extra reserves than they did before, becuase you don't make money on reserves and thus banks like to limit them as much as possible. They're former reserves turned into money. Focusing on reserves actually misses the point a bit I think. Banks in trouble will show capitalization problems and regulators coming to close them down before they burn through all their reserves unless there is a run on the bank. I don't recall hearing about any major runs on banks other than a brief one on CFC and Northern Rock.