The money is the result of the Federal Reserve's massive liquidity injections. Another way to gauge excess reserves is to look at the cash balances of commercial banks, which can be found in the Federal Reserve's H.8 release, the Fed's weekly report on the assets and liabilities of commercial banks. In Friday's release, cash balances held by commercial banks topped $1 trillion for the first time, reflecting cash balances held at the Fed. Pre-Lehman, cash balances tended to hover around $300 billion, with an annual growth rate of less than 1% per year.
The Federal Reserve's curse on cash, hexed as it was last week with the Federal Reserve's Zero Interest Rate Policy (ZIRP), will eventually pressure banks to use the cash, as net interest margins on loans are far more attractive than the return on cash. Of course, banks need to feel safe that default rates will be low enough to make the foray seem attractive. In due time.
(George Dowd, New Edge and Gary Kaminsky, former Neuberger Berman managing director discuss Crescenzi's note in the video).
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