If there were higher interest rates for banks, would CDs/MMAs give a higher return? - high interest bank cds
Basically, the interest rates are now almost zero. Say .25%. This means that the banks have only 25% of your money in a vault to keep? Or am I thinking of something else. Reserve fractional frequency .. I think ... is that the same thing?
And if the Fed raised its key interest rate (also known as the Federal Funds rate known - is not it?) And you want a better return on your CD and / or MMA?
Friday, January 8, 2010
High Interest Bank Cds If There Were Higher Interest Rates For Banks, Would CDs/MMAs Give A Higher Return?
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If you have a large bank that the nature of all other banks to dictate when the Federal Reserve. The Federal Reserve Bank works directly with the United States Treasury Department is responsible for the printing and the substitution of money.
The Fed is also responsible for the regulation of all private banks (most banks and financial institutions in the U.S.). The private banks rather than to keep the Federal Reserve to certain amount of their deposits with the Federal Reserve. Approximately 10% and 15%. This gives a cushion of private banks have a problem and also allows the Fed the money supply in the United States to control. In other words, the banks have more money for the secret to keep is less available to be lent to people. This means that the money is hard to get, the higher interest rates, etc.
The federal government also controls interest rates and interest rates to the banks, while their money in the reserve. Banks can borrow money from the Fed. The rate is called the federal funds rate. If the Fed is higher inis for banks to require borrowers banks turn more. In addition to the rates lenders demand higher returns for its loan statements known CD, the higher interest rates in general.
Since we are in the midst of a banking crisis and recession, Federal Reserve Chairman Ben Bernanke, had to remove stuff is too crazy enough to (the question of who has more money that they have enough balance to pay the credit crisis), combined with banks in difficulty (the implications of the mortgage). Thus, both banks will need additional capital to protect against failures, and have more money to lend at the same time, while interest rates are low, should help to troubled borrowers.
It's a pretty bad situation, as a rule, the Fed's reserve requirements, to protect banks from failure, would, however, the amount of reserve requirements for banks to reduce in order to have more money available to lend and to demand higher interest rates low. Since it has two contradictory movements, was not a problem.
Ben Bernanke helped organizethe problem by forcing banks to take a lot of money by selling shares to raise it to protect against failures. (This is called "Stress Test"). It was not good for the banks because the market prices were so low he had to do a lot of new shares to get money. That is all action, there is less profitable than before. In addition, Ben Bernanke cut the federal funds rate to 0%. This means that banks can borrow from the Fed and pay no interest. This means that, theoretically, a lower interest rate to its borrowers (home buyers, should, etc..) But in reality, they pay about 5 or 6%. Not a bad deal.
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