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Lou Crandall & Joseph Wang: A Monetary Plumbing Masterclass
Forward Guidance
The Fed's Minimum Reserves in the Banking Sector
The Federal Reserve has a minimum level of comfortable reserves below which yellow warning sign, red sign, alarm. Joseph: Why is it that $1.9 trillion isn't enough for the banks to have? Peter Stella: Part of it is because post-grid financial crises, banks are required to hold more cash at the Fed. But my own personal view is that I think there's a sizable disconnect between what the Fed thinks is the lowest comfortable level reserves in the banking sector and what the banks think is their lowest comfortable level.
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