Wednesday, June 12, 2013

Banks hoard nearly $1 Trillion at Fed

chart-fed-cash-hoardFORTUNE -- U.S. banks now have $1 trillion at the Federal Reserve. It's far more than they have ever had before, and it could be a big problem.
And it's a new one. Before the financial crisis, the amount of cash banks kept idle at the Fed rarely topped $25 billion, which in terms of a multi-trillion dollar banking system is peanuts. But shortly after the start of the financial crisis, as a move to help the banks and save the economy (or perhaps the other way around), the Fed began paying interest on money banks deposited at the Fed.
Money flowed in. It has been rising ever since, but the rate of increase has picked up recently. In the first three months of this year, bank reserves at the Fed rose nearly $200 billion, or 25%, after barely budging in 2012. The amount passed the trillion dollar mark for the first time in April. Still, all that extra cash has done little to boost lending, which dropped in the first quarter.