It's 2022 and we're still saying banks lend reserves?
Thanks for the article. I mostly agree, but the leverage ratio is a problem here. Unless reserves are exempt from the leverage ratio, the FED choosing to increase reserves also means it requires that leverage-ratio-bound banks increase capital or decrease their leverage ratio exposure measure in other ways - and don't forget that the LREM feeds into the G-SIB charge. This in turn creates an issue for the transmission of monetary policy, as even Carolyn Rogers has acknowledged. If the simple model that increasing reserves increases bank assets and liabilities with no increase in capital worked, we'd be good. Hence it's a shame that the FED's temporary change to exempt reserves from the SLR in wasn't made permanent.
If QE worked why do I have to work twice as long to buy a home?
What econ labels growth means lower living standards for the plebs.
Sorry but I'm afraid you've misunderstood what 'excess reserves' means. These are the reserves held with the Fed above and beyond the banks' capital requirements. The point is that these capital requirements are a quantity of reserves defined as a ratio to loans - that is, if loans increase then the reserve requirements increase too. Krugman is therefore not saying that if there were a sufficient quantity of good lending opportunities then the banks would lend the reserves themselves or destroy them in some way; rather, he's saying that banks would increase their loans and thereby *excess* reserves would no longer be *excess*.