We would all like to know how to get banks to start lending money to individuals and businesses, right? Many of them have recieved bail out money over the last few years. And many of those bail out dollars have already been paid back. So why don’t the banks want to lend out very much of their money? There are probably many answers to that question that make sense. The economic recovery is still pretty shakey, they’re not sure what’s going to happen with tax rates, they’re not sure if people will be able to pay it back, etc. All valid reasons I’m sure. However, if the banks would start lending out more of their $1.4 TRILLION that is on deposit with the Federal Reserve currently, wouldn’t that fuel a lot of economic activity, growth, and jobs?
I can see the banks point of view. The Federal Reserve is currently paying them .25% on their $1.4 TRILLION, and they in turn pay you and I about .10% or less, with NO RISK! Do the math, and it looks pretty good for the banks to keep that money right where it is.
One great way to get that money moving towards the consumer would be for the Federal Reserve to stop paying the banks interest on those deposits. Or even better, start charging THEM a fee to keep it there. The banks are going to place the money where it can earn the most, within reasonable risk parameters. If they were no longer earning risk-free interest, and having to do nothing for it, I think some more money would start to flow.
I would love to hear your thoughts and comments about this matter. Have a great day!