I was just thinking about how little incentive banks have right now to actually lend money. I mean, buying short MBS or agency bonds is a no brainer for a bank right now - not much capital needed, no credit risk, interest rate risk somewhat constrained by Fed (extended period of time), nice spread over cost of funds…Why would a bank lend? How could the Fed stimulate bank lending as opposed to using their funds to hold investments? Do any of these help? 1. Increase capital requirements against securities over a certain % in the portfolio? 2. Force banks to match the duration of funding with security assets (more expensive funding for securities)? 3. More secondary balance sheet expansion by buying even more agencies and MBS so the yield goes down and the spread to banks goes down? 4. Impose a minimum rate on deposits (high cost of funds)? 5. More FDIC fees on deposits if not used for lending?
- Lend to people who can’t pay it back. Oh wait we tried that.
justin88 Wrote: ------------------------------------------------------- > 6. Lend to people who can’t pay it back. > > Oh wait we tried that. Exactly. More lending isn’t what the economy needs. People are up to their eyeballs in debt already. We need the banks to deleverage. m
Maybe by lowering taxes increasing spending power of consumers, and reducing govt expenditure.