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Fed And Exec Move to Formally Eliminate Reserve Requirements
From the latest minutes of the FOMC (hat tip Steve Waldman):
The Chairman noted that the President had recently signed the Financial Services Regulatory Relief Act of 2006, which among its provisions gave the Federal Reserve discretion, beginning October 2011, both to pay interest on reserve balances and to reduce further or eliminate reserve requirements.
Frankly, I'm not quite sure what this realistically entails. I've already written (and so have others) on how there has been effectively no reserve requirement for more than a decade now. Perhaps the formal elimination of these requirements is a butt-covering operation, now that their lack is becoming more widely known.
Perhaps there is still some sort of constraint (though I can't imagine what it is), and Fed and banking industry interests are agitating for more slack, as per usual.
Perhaps this could be counted, along with the elimination of M3 reporting, as indication of some administrative expectation that vast quantities of liquidity (even more vast than is now normal) will soon be needed.
I have no idea. But whatever is going on, it is not in support of fiscal responsibility, prudence, and soundness.