For U.S. Depository Institutions non borrowed reserves have been between $30-50B for the past 65 years.
Two weeks ago the number was -154 Billion
Today? -363 Billion.
–From a friend who is an analytical whiz about the industry. For those interested in the subject, the latest information on this may be found here.
According to this article, this has been in progress all year, due to mortgage writeoffs:
http://www.undergroundpolitics.com/index.php/markets_and_economy/credit_crunch_bank_reserves_negative.html
But why so much lately? Is this a bank run?
In case you’re wondering about the meaning of “nonborrowed reserves” . . .
A bank that offers checking accounts must keep “reserves” equal to at least 10% of the checking deposits it holds.
Money counts as “reserves” if the bank holds it in cash (in vaults or ATMs) or in the bank’s account at the regional Federal Reserve Bank.
Thus Bank A has $500 million in checking deposits, it must hold $50 million in reserves.
If Bank A has only $40 million in reserves, it will normally borrow the remaining $10 million from a bank that has more reserves than it needs. (This borrowing occurs in what is known as the “Fed funds” market.)
PS to #2: Being short of reserves is not the same as being balance-sheet insolvent. You are insolvent if your liabilities exceed your assets. Even if your assets far exceed your liabilities, you can be short of reserves if your assets include little cash.
“Is this a bank run?”
A bank “run” occurs when a bank’s depositors fear for the safety of their money and demand it all immediately. A bank “panic” occurs when many banks face runs—runs based on on the banks’ own weaknesses but on a generalized loss of confidence in the banking system.
Policymakers and financial regulators fear we’re on the verge of a bank panic. Small depositors have remained calm, but big foreign depositors have evidently been making big withdrawals. These withdrawals leave the banking system short of cash.
In #4, the second sentence should read:
“A bank ‘panic’ occurs when many banks face runs—runs based NOT on the banks’ own weaknesses but on a generalized loss of confidence in the banking system.”