What are Borrowed Reserves?

Borrowing reserves are a requirement for commercial banks in the United States to borrow funds through a federal discount window. In 1983, the Federal Reserve set borrowing reserves as the implementation goal of monetary policy. The level of the banking system's borrowing reserves is closely related to the spread between the federal funds rate and the rediscount rate (the cost of borrowing from the rediscount window, which changes infrequently). When other conditions remain unchanged and the federal funds rate rises relative to the rediscount rate, borrowing reserves will increase because commercial banks are more willing to borrow from the Federal Reserve than interbank borrowing. Therefore, targeting borrowing reserves is the same as targeting the federal funds rate. ^[1]

Borrowing reserve

Right!

Borrowing reserves are a requirement for commercial banks in the United States to borrow funds through a federal discount window. In 1983, the Federal Reserve set borrowing reserves as the implementation goal of monetary policy. The level of the banking system's borrowing reserves is closely related to the spread between the federal funds rate and the rediscount rate (the cost of borrowing from the rediscount window, which changes infrequently). When other conditions remain unchanged and the federal funds rate rises relative to the rediscount rate, borrowing reserves will increase because commercial banks are more willing to borrow from the Federal Reserve than interbank borrowing. Therefore, targeting borrowing reserves is the same as targeting the federal funds rate. ^[1]

Commercial banks and

The central bank can assess the financial operation status of a financial institution through the change of the deposit reserve account. If a financial institution's borrowing reserve period is too long and the proportion is too large, its capital operation may have certain risks.

Depository financial institutions such as commercial banks are generally unwilling to owe liabilities to other banks. When they have excess reserves, they mostly repay the loans first, and then make loans or investments. The derivation or expansion of deposits relies more on non-borrowing provisions.

Therefore, when the central bank controls the base currency and pays the deposit, it usually pays more attention to the changes in the non-borrowing reserve of commercial banks. However, some economists believe that although there is a certain difference between borrowing reserves and non-borrowing reserves, from the perspective of the entire financial system, the distribution of living funds still depends on the total reserves and basis determined by the legal reserve ratio. currency. As a whole, the statutory reserve ratio is a stable ratio. If the ratio of non-borrowing reserve and borrowing reserve increases, the proportion of borrowing reserve and borrowing reserve should decrease accordingly, rather than just a certain increase or Reduced, so the borrowing reserve should not be considered separately from the non-borrowing reserve.