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Economics/Limitations on Lending by the U.S. Federal Reserve


Is there limit for federal reserve bank to lend ? example : banks want to borrow from the fed 100 trillions in 2013

Dear Robin--

For future reference, it would be extremely helpful if you could be more precise in your description of the 'Subject' of your query than 'Question'. Many people look through questions to which answers have already been posted in order to see if the questions they're wanting to ask have already been addressed. To the extent that your description is precise, you save them--and me--time; I'm not paid for my time here, so every hour I donate means less income for my family. In this case, I changed 'Question' to 'Limitations on Lending by the U.S. Federal Reserve'. Thanks in advance for your help.

Now, to your question itself:

Member banks of the U.S. Federal Reserve System are required to keep a percentage of their demand deposits (checking accounts) and time deposits (savings accounts) either in cash (in their bank vaults) or on deposit with the Federal Reserve. Customers' demand and time deposits are carried as liabilities on banks' balance sheets - that is, a depositor makes a deposit, and, though the bank has custody of the deposit (in its Cash account), it also is liable to the customer for the money that s/he just deposited. I look at reserve requirements as a modest form of insurance that intends to reassure depositors that their money will be there and available to them if/when they need to draw on it.

These percentages are called 'reserve requirements'; as of now, the reserve requirement on a bank's demand deposits that total more than $12.4 million and less than $79.5 million is 3%; amounts in excess of $79.5 million must be reserved at a rate of 10%. Right now, there is no reserve requirement on time deposits. It's never been that way until recent years, but it's just one more indication--if any were needed--of the anemic level of economic recovery in the United States from the collapse of 2008-2009.

Such requirements are one of the several tools at the Fed's disposal that it can use to try to increase economic activity or dampen inflation or expectations of inflation. The higher the reserve requirements, the less that member banks have available to lend. That, in turn, raises interest rates, at least in the short term, which should result in lower inflation as a result of less economic activity. The effects of lower reserve requirements tend to be just the opposite.

You can read more about reserve requirements by clicking here; a table of the current levels is here.

I hope this explanation answers your question, Robin. I hope you will do me the favor of completing the rate-the-expert e-mail you'll receive on the heels of this response. Your ratings and, especially, your written comments help me do a better job of helping folks like you around the world who ask such interesting questions! Thanks in advance for doing that.

Take care.

Warren Miller


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Warren D. Miller, CFA, CPA, ASA


My expertise in economics is limited to three sub-disciplines: Austrian economics, industrial organization, and evolutionary economics. Questions dealing with macroeconomics and other sub-disciplines of the subject should be submitted to those who have the appropriate expertise. N.B.: I DO NOT ANSWER QUESTIONS MARKED 'PRIVATE' because I believe that knowledge should not be hoarded. I also believe that such questions are likely to come those trying to cheat. Also, as one who was a full-time academic for half a decade, I can recognize test/homework questions several time zones away. Do not demean yourself by submitting such questions to me. Those who do so are cheating; I WILL call you out publicly. I have a zero-tolerance policy for cheating and dishonesty. In addition, please don't emulate the businessman who posted a request for help in August 2008. He expressly denied that he was seeking "investment advice" and said that his query was for, and I quote, "educational and informational purposes." Later, he allowed as how his questions related to the possible purchase of a $500K piece of equipment. I said I thought he had misrepresented himself. Bottom line: high-end business consulting is how I make my living. I am the sole support for my family. Please respect that fact and don't try to get for free what our clients pay for. If your company is big enough to have a sophisticated problem, it can afford to pay for the expert advice we and others provide. Beckmill Research, LLC, is a 95-octane firm. We're small, but we've been at this for nearly 20 years. We know what we're doing. Segue: Early on, some asked me for career advice; I gave it. I now get many such requests. The demand for a valuable good that is free is unlimited, so I now charge for that advice. Email me: Finally, PLEASE DO NOT ASK FOR INVESTMENT ADVICE. I am not licensed to provide such advice. If you want such counsel, talk to your financial planner or other financial adviser.


I work with Austrian economics (which differs in major respects from the traditional economics), industrial organization (which is about industry structure, conduct, and performance), and evolutionary economics (almost, but not quite, the economic analog of its biological counterpart) every day in my work. I appraise closely-held businesses, provide exit-planning services, and offer high-level strategic analysis, advice, and solutions to CEOs and owners of mid-sized businesses. Understanding, applying, and writing about these disciplines is an essential part of how I have made my living since 1993.

CFA Institute, Strategic Management Society, American Society of Appraisers, Academy of Management, Culver Legion, National Association of Scholars.

CFA Magazine, Strategic Finance, Valuation Strategies, Journal of Advanced Property Economics, Harvard Business Review, American Fly Fisher, CFA Digest, CPA Expert, Business Valuation Review, among others

Chartered Financial Analyst designation (2006); Accredited Senior Appraiser in Business Valuation (2006); Certified Public Accountant (1992); MBA - Oklahoma State University (1991); Completed all of my Ph.D. coursework in strategic management - Oklahoma State University (1983-87); BBA in finance and accounting - U. of Oklahoma (1975)

Awards and Honors
Business Valuation Volunteer of the Year (2001) - American Institute of CPAs; Winner - Oklahoma Humorous-Speaking Contest - Toastmasters International (1971)

Past/Present Clients
Names are confidential. However, the "sweet spot" of our target market is companies that are too big to be small and too small to be big. Usually, those are companies with employees in the 15-to-100 range. At the low end of that range is where companies can first take advantage of the specialization of labor. However, having everyone do everything is a tough habit for many--most, I would argue--small enterprises. That is why they not only remain small, but also fail to survive beyond a second generation. Only 5% (one in twenty) companies make it to the third generation of ownership.

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