Dude, banks pay interest on customer liabilities which nets against the interest paid on reserves. The fact that the RBA bought several hundred billion dollars of fixed rate assets and funded them with overnight deposits from the banking system (ES) is not the banks fault, it’s Phil Lowes!
Interesting question as to why the ESA balances rate was not set at zero in March 2020. While a corridor system necessarily collapses to a floor system at the zero bound, the subsequent reduction in the target rate to 0.1% and ESA rate to zero shows that the claimed ELB at 0.25% was a self-imposed policy constraint rather than a technical or operational one.
Yeah. Interestingly most tiered reserves regimes have actually been implemented to protect banks balance sheets when rates are set to negative levels (the idea being you only set the marginal reserve to have a negative rate and don’t tax the whole stock). So the system could have multiple benefits.
They've always paid interest in principle, right? They didn't start at the start of the pandemic - it's just that that's when excess reserves became the norm and it started to be relevant.
I think the only reason the media release from the start of the pandemic is saying "we'll pay 0.1%, rather than zero, as would have been the case under previous arrangements", is because the rate used to be set at 25bps below the target cash rate, which would be zero at that time when the cash rate target was reduced to 0.25%, but would not normally have been zero.
Yes, you are right! Poor wording, they've always paid some interest but they generally used OMOs to ensure that excess reserves were essentially 0 and the cash rate was no where near the deposit rate.
My dude, the reason for OMO was because the Governments account at the RBA removed cash from the private sector (via taxes). This left a negative cash balance in the system and OMO/FX swap was just the RBA pushing this cash out otherwise the system would be short billions of dollars and have been broken. Banks paid interest on these borrowings at the market rate. Phil Lowe created $450b of excess cash through his I’ll advised balance sheet expansion and paid for it with cash he created. By definition this excess liquidity has to sit with ES holders (banks) but it is not their choice, it’s just the mechanics of the system. This cash comes to the banks via their liabilities (deposits etc) which they pay interest on, this is not some windfall gain. Serious question, do you know how the system works? This was just a massive long interest rate risk position from Phil that went horribly wrong and has cost the taxpayer $50b and counting. The RBA is part of the government and in simple terms just lost taxpayer money without any oversight.
Dude, banks pay interest on customer liabilities which nets against the interest paid on reserves. The fact that the RBA bought several hundred billion dollars of fixed rate assets and funded them with overnight deposits from the banking system (ES) is not the banks fault, it’s Phil Lowes!
Interesting question as to why the ESA balances rate was not set at zero in March 2020. While a corridor system necessarily collapses to a floor system at the zero bound, the subsequent reduction in the target rate to 0.1% and ESA rate to zero shows that the claimed ELB at 0.25% was a self-imposed policy constraint rather than a technical or operational one.
Yeah. Interestingly most tiered reserves regimes have actually been implemented to protect banks balance sheets when rates are set to negative levels (the idea being you only set the marginal reserve to have a negative rate and don’t tax the whole stock). So the system could have multiple benefits.
They've always paid interest in principle, right? They didn't start at the start of the pandemic - it's just that that's when excess reserves became the norm and it started to be relevant.
I think the only reason the media release from the start of the pandemic is saying "we'll pay 0.1%, rather than zero, as would have been the case under previous arrangements", is because the rate used to be set at 25bps below the target cash rate, which would be zero at that time when the cash rate target was reduced to 0.25%, but would not normally have been zero.
Yes, you are right! Poor wording, they've always paid some interest but they generally used OMOs to ensure that excess reserves were essentially 0 and the cash rate was no where near the deposit rate.
My dude, the reason for OMO was because the Governments account at the RBA removed cash from the private sector (via taxes). This left a negative cash balance in the system and OMO/FX swap was just the RBA pushing this cash out otherwise the system would be short billions of dollars and have been broken. Banks paid interest on these borrowings at the market rate. Phil Lowe created $450b of excess cash through his I’ll advised balance sheet expansion and paid for it with cash he created. By definition this excess liquidity has to sit with ES holders (banks) but it is not their choice, it’s just the mechanics of the system. This cash comes to the banks via their liabilities (deposits etc) which they pay interest on, this is not some windfall gain. Serious question, do you know how the system works? This was just a massive long interest rate risk position from Phil that went horribly wrong and has cost the taxpayer $50b and counting. The RBA is part of the government and in simple terms just lost taxpayer money without any oversight.
Yup, fair enough!