What Happened to the Fed’s Trillions? Back on Deposit…at the Fed!

“So you can understand why they wanted to have the tool. Now the question is whether or not this tool as it was implemented throughout this financial crisis, and aftermath, has exacerbated the problems with the credit channel. A bank can decide, ‘Do I want to give a three-year loan to a risky borrower, or do I want to get 25 basis points at the Federal Reserve? I’m really risk averse right now. I don’t really want to lend to anybody so I’d rather take my 25 basis points.’ So I believe that at the margin, this has affected the credit channel, the effectiveness of the credit channel.”


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