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(Well, you might get some Funny effects if you jack reserve requirements higher than 100 % while remunerating reserves, unless you take care to ensure that banks cannot exploit the reserve remuneration with bogus loans.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 11th, 2011 at 03:11:02 AM EST
[ Parent ]
Currently the ECB's reserves are remunerated at the repo rate. Which means that, apart from the haircut, it's free for eligible banks holding eligible assets to satisfy reserve requirements. Which is why tapping the marginal lending facility should be a sign of distress (why pay 2% overnight when you can do a free weekly repo?). By the way, the ECB's reserve requirement is 2% of deposits.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed May 11th, 2011 at 03:54:43 AM EST
[ Parent ]

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