A whopping $1.5 trillion in reserves are now sitting in Fed reserve accounts. We, the taxpayers, are paying $36 billion annually to private banks for parking them, rather than lending them out.
The Fed is supposedly a private organization that print our currency and charges us interest for doing so. Ellen Brown wrote this article and I think she even did an AMA here at one point. She’s also in the documentary by Bill Still called The Money Masters or The Secret of Oz if I remember correctly.
via truthdig:
“If you invest your tuppence wisely in the bank, safe and sound,
Soon that tuppence safely invested in the bank will compound,
And you’ll achieve that sense of conquest as your affluence expands
In the hands of the directors who invest as propriety demands.”
— “Mary Poppins,” 1964
When “Mary Poppins” was made into a movie in 1964, Mr. Banks’ advice to his son was sound. The banks were then paying more than 5% interest on deposits, enough to double young Michael’s investment every 14 years.
Now, however, the average savings account pays only 0.10% annually—that’s one-tenth of 1%—and many of the country’s biggest banks pay less than that. If you were to put $5,000 in a regular Bank of America savings account (paying 0.01%) today, in a year you would have collected only 50 cents in interest.
That’s true for most of us, but banks themselves are earning 2.4% on their deposits at the Federal Reserve. These deposits, called “excess reserves,” include the reserves the banks got from our deposits, and on which they are paying almost nothing; and unlike with our deposits, there is no $250,000 cap on the sums banks can stash at the Fed amassing interest. A whopping $1.5 trillion in reserves are now sitting in Fed reserve accounts. The Fed rebates its profits to the government after deducting its costs, and interest paid to banks is one of those costs. That means we, the taxpayers, are paying $36 billion annually to private banks for the privilege of parking their excess reserves at one of the most secure banks in the world—parking them, rather than lending them out.
The banks are getting these outsize returns while taking absolutely no risk, because the Fed, as “lender of last resort,” cannot go bankrupt. This is not true for other depositors, including large institutions such as the pension funds that hold our retirement money. As Matt Levine notes on Bloomberg:
[I]f you are a large institutional cash investor—a money-market fund, a foreign central bank, things like that—then in some sense you have no way to keep your money perfectly safe. … The closest that big non-banks normally get is “overnight general collateral repo”: You give your money to a bank, and the bank gives you back a Treasury security as collateral, and you can get your money back the next day.
https://www.investmentwatchblog.com/a-whopping-1-5-trillion-in-reserves-are-now-sitting-in-fed-reserve-accounts/