Banks Hoard $1 Trillion in Reserves…and the Federal Reserve "Solution"
American banks are sitting on nearly $1 trillion in reserves, holding onto money instead of loaning it out to homeowners and businesses which the federal government has wanted for the past year. Beginning in September 2008, when the financial crisis went super critical, banks went from $45 billion in reserves to more than $900 billion in just four months, thanks to Washington’s bailout efforts. The financial sector has continued to limit credit throughout 2009, reaching the point where the Federal Reserve is now proposing to sell term deposits to banks to absorb some of the banking system’s excess reserves. A term deposit is a short-term investment in which the investor receives a higher rate of return in exchange for an agreement to not withdraw the funds until the term ends.
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