Federal Reserve scraps transfer count limits on savings accounts

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Federal Reserve scraps transfer count limits on savings accounts

Post by indexfundfan »

Federal Reserve scraps transfer limits on bank savings accounts.

https://www.reuters.com/article/us-heal ... SKCN22627Z

Obviously your bank can still keep the 6-withdrawal per month limit, but now they can't say it is due to the Fed's Reg D requirement.
Last edited by indexfundfan on Fri Apr 24, 2020 2:20 pm, edited 1 time in total.
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by mptfan »

Does that also apply to credit unions?
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by indexfundfan »

mptfan wrote: Fri Apr 24, 2020 12:00 pm Does that also apply to credit unions?
I would think so. The now repealed Regulation D applied to savings and money market accounts.

I wonder if banks would resist removing this limitation, because then the cash balances (a money maker since no interest is usually paid in checking) held in checking accounts would fall substantially.

With the prevalence of electronic debits, a checking account would only needed if you want physical checks. Everything else, you can direct debit from a savings account.
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by mptfan »

indexfundfan wrote: Fri Apr 24, 2020 12:06 pm With the prevalence of electronic debits, a checking account would only needed if you want physical checks. Everything else, you can direct debit from a savings account.
True, but I think it's important to separate the bulk of your savings from your transactional account, i.e. the account you use to transfer money and pay bills and write checks, in order to minimize the risk of fraudulent activity. For this reason I will continue to use a checking account as my transactional account so I can have a firewall of sorts by controlling the funds in the checking account that are available for outside transactions and payments and to minimize losses in the event of fraud.
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by Church Lady »

I'm more worried about this part of the article:
In March, the Fed scrapped its reserve requirements for bank accounts as part of a broader effort to keep funds flowing to businesses and households amid the pandemic. Previously, banks were required to hold a certain amount of reserves against funds in “transaction accounts,” like checking accounts, that saw money frequently coming and going.
Removing reserve requirements seems like an absurdly bad idea. Trouble ahead for banks?
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by xenial »

mptfan wrote: Fri Apr 24, 2020 12:18 pm
indexfundfan wrote: Fri Apr 24, 2020 12:06 pm With the prevalence of electronic debits, a checking account would only needed if you want physical checks. Everything else, you can direct debit from a savings account.
True, but I think it's important to separate the bulk of your savings from your transactional account, i.e. the account you use to transfer money and pay bills and write checks, in order to minimize the risk of fraudulent activity. For this reason I will continue to use a checking account as my transactional account so I can have a firewall of sorts by controlling the funds in the checking account that are available for outside transactions and payments and to minimize losses in the event of fraud.
I agree this separation is desirable, but if Ally eliminates the six withdrawal limit, I'll just use two different savings accounts.
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by CAsage »

xenial wrote: Fri Apr 24, 2020 12:29 pm I agree this separation is desirable, but if Ally eliminates the six withdrawal limit, I'll just use two different savings accounts.
I'm not sure that treating a savings account just like a checking account is a good thing... but I did set up a different "savings" account to debit weekly to fund my kid's allowance. Psychologically we tend to treat "savings" as something not-to-spend, and that's a good tool to have.
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by indexfundfan »

CAsage wrote: Fri Apr 24, 2020 12:33 pm
xenial wrote: Fri Apr 24, 2020 12:29 pm I agree this separation is desirable, but if Ally eliminates the six withdrawal limit, I'll just use two different savings accounts.
I'm not sure that treating a savings account just like a checking account is a good thing... but I did set up a different "savings" account to debit weekly to fund my kid's allowance. Psychologically we tend to treat "savings" as something not-to-spend, and that's a good tool to have.
Some online banks offer you the ability to setup as many buckets (savings accounts) as you like. You can name each one for a specific purpose if you wish.

It would be interesting to see which online bank will announce first that they are removing the 6-withdrawal restriction.
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by mptfan »

xenial wrote: Fri Apr 24, 2020 12:29 pm I agree this separation is desirable, but if Ally eliminates the six withdrawal limit, I'll just use two different savings accounts.
How is that different from using a checking account and a savings account?
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by indexfundfan »

mptfan wrote: Fri Apr 24, 2020 12:54 pm
xenial wrote: Fri Apr 24, 2020 12:29 pm I agree this separation is desirable, but if Ally eliminates the six withdrawal limit, I'll just use two different savings accounts.
How is that different from using a checking account and a savings account?
Most checking accounts pay nothing or peanuts in interest.
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by xenial »

mptfan wrote: Fri Apr 24, 2020 12:54 pm
xenial wrote: Fri Apr 24, 2020 12:29 pm I agree this separation is desirable, but if Ally eliminates the six withdrawal limit, I'll just use two different savings accounts.
How is that different from using a checking account and a savings account?
I'd be getting higher interest on my transactional account this way, though the difference would indeed be very small.
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by AlphaLess »

I would change the title of the thread to:

"Federal Reserve scraps monthly transfer count limits on savings accounts"
Last edited by AlphaLess on Fri Apr 24, 2020 9:37 pm, edited 1 time in total.
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by mptfan »

AlphaLess wrote: Fri Apr 24, 2020 1:16 pm I would change the title of the thread to:

"Federal Reserve scraps monthly transfer count limits on bank savings accounts"
That title is misleading to me because it implies that credit unions are not included.
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by Gufomel »

Is this short-term or going forward?
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by palanzo »

xenial wrote: Fri Apr 24, 2020 12:29 pm
mptfan wrote: Fri Apr 24, 2020 12:18 pm
indexfundfan wrote: Fri Apr 24, 2020 12:06 pm With the prevalence of electronic debits, a checking account would only needed if you want physical checks. Everything else, you can direct debit from a savings account.
True, but I think it's important to separate the bulk of your savings from your transactional account, i.e. the account you use to transfer money and pay bills and write checks, in order to minimize the risk of fraudulent activity. For this reason I will continue to use a checking account as my transactional account so I can have a firewall of sorts by controlling the funds in the checking account that are available for outside transactions and payments and to minimize losses in the event of fraud.
I agree this separation is desirable, but if Ally eliminates the six withdrawal limit, I'll just use two different savings accounts.
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by indexfundfan »

mptfan wrote: Fri Apr 24, 2020 1:20 pm
AlphaLess wrote: Fri Apr 24, 2020 1:16 pm I would change the title of the thread to:

"Federal Reserve scraps monthly transfer count limits on bank savings accounts"
That title is misleading to me because it implies that credit unions are not included.
I just used the same title from Reuters. :-)
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by TravelGeek »

mptfan wrote: Fri Apr 24, 2020 1:20 pm
AlphaLess wrote: Fri Apr 24, 2020 1:16 pm I would change the title of the thread to:

"Federal Reserve scraps monthly transfer count limits on bank savings accounts"
That title is misleading to me because it implies that credit unions are not included.
So remove the word bank to make it all inclusive, but I definitely agree that it's the count limit that was scapped, not a transfer (amount) limit.
indexfundfan wrote: Fri Apr 24, 2020 1:25 pm
I just used the same title from Reuters. :-)
So here's your chance to do better than Reuters' copy editor.
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by Phineas J. Whoopee »

Church Lady wrote: Fri Apr 24, 2020 12:28 pm ...
Removing reserve requirements seems like an absurdly bad idea. Trouble ahead for banks?
I was somewhat shocked by it, but for several years there has been a cogent argument that still-extant capital requirements are a bigger constraint on lending anyway.

The Fed didn't require banks not to keep reserves in their regional Fed banks and as cash in their vaults. It only allowed them not to. Vault cash earns nothing, but for a bank with branches it's prudent to have some. Reserves at the regional Fed bank can be exchanged for physical currency daily via armored car; in some metro areas twice daily. Reserves on deposit do earn interest. At present it's 0.10%. Not a lot, but more than nothing, and without the costs incurred in handling physical Federal Reserve Notes. It's within the 0.00% to 0.25% Federal Funds Rate target, FFR, but that itself has to do with bank reserves.

We'll see how it works out. The FDIC is still there, and its funding source, assessments on banks, still operates the same as it did before.

PJW
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by JonnyB »

This is interesting because it means that the Federal Reserve has given up on their decades long requirement for bank reserve requirements. For years the requirement was that banks maintain 10% cash either in their vaults or on deposit at the Federal Reserve Bank for every dollar of demand deposits, which means primarily checking accounts. Bank savings accounts were not considered demand deposits because there were limitations on the frequency of transactions.

The reason that bank reserve requirements were important is that for decades that was the primary way that the Federal Reserve controlled the velocity of the economy. Banks have the ability to create money out of thin air by making loans. When they make a loan, which is an asset to the bank, they also make a corresponding deposit into the borrower's checking account, which is a liability to the bank. That deposit into the borrower's checking account is newly created money.

So what prevents banks from creating unlimited amounts of money. Well, for years it was reserve requirements. The banks could create new money only up to the limit of their reserves of 10%. So for every dollar of reserves, they could create 10 dollars of new loan deposits.

The Federal Reserve throttled the velocity of bank loans by throttling the amount of bank reserves that allowed banks to lend. When the Federal Reserve buys a treasury bond from the bank or member of the public, it creates new money to pay for it by making a deposit at the bank. That increases the banks reserves, allowing it to lend more money, 10 dollars of lending for every dollar of new reserves.

The opposite occurs when the Federal Reserve sells a treasury bond. The buyer pays for the bond by making a withdrawal from their bank account which reduces the bank's reserves. This means the bank can make fewer loans. Every dollar of withdrawn reserves means 10 dollars fewer loans.

By buying and selling treasury bonds, the Federal Reserve throttled the amount of bank reserves, which because of the 10% reserve requirement, throttled the amount of bank lending and the growth of the economy.

But that all changed with the Great Recession. The Federal Reserve bought so many treasury bonds in an attempt to lower interest rates that banks were flooded with reserves. Remember, every time the Fed buys a treasury bond, they make a deposit in the bank's reserve account.

Why didn't this flood of money cause a flood of lending and inflation? It was because the economy was in recession. The banks simply could not find useful businesses or projects to lend their money to. So the excess reserves, the amount above their 10% lending requirement just sat there in their accounts at the Federal Reserve Bank-- almost $3 trillion of it.

Because of these excess reserves, the Federal Reserve had a new quandary. There old throttle of expanding and contracting the amount of bank reserves to control the growth of the economy no longer worked. Banks had so much excess reserves that simply buying and selling a few treasuries had no effect on bank lending. They have more reserves than they ever need.

So the Federal Reserve came up with a new method of keeping these excess reserves from leaking into the economy and causing inflation. The Federal Reserve for the first time in 2008 started paying banks interest on their excess reserves. By varying the the interest rate, the Federal Reserve can throttle the incentive for a bank to lend. If the bank can make a risk free higher rate from their deposit at the Fed, they are less likely to loan for more risky investments.

The Interest On Excess Reserves (IOER) started out at 0.5% in 2008, but as the economy began to expand, the Fed gradually raised the IOER in small steps starting 2016 until it reached 2.4% in 2019. The Fed started to gradually lower this interest rate as signs of a slowing economy showed up early in 2020, and then fell off the cliff in March 2020. The IOER is now just 0.1%, lower than it was in 2008.

So what does this all have to do with the new rule on bank accounts. Well, since the Federal Reserve no longer has a reserve requirement for the banks, there is no longer any point in restricting the types of demand accounts to just checking. That doesn't mean that the Fed can't restore the reserve requirements, but it is unlikely to happen anytime soon -- soon meaning years.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by indexfundfan »

JonnyB wrote: Fri Apr 24, 2020 2:54 pm This is interesting because it means that the Federal Reserve has given up on their decades long requirement for bank reserve requirements. For years the requirement was that banks maintain 10% cash either in their vaults or on deposit at the Federal Reserve Bank for every dollar of demand deposits, which means primarily checking accounts. Bank savings accounts were not considered demand deposits because there were limitations on the frequency of transactions.
...
Interesting. Thanks for sharing.
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by mptfan »

TravelGeek wrote: Fri Apr 24, 2020 1:53 pm
indexfundfan wrote: Fri Apr 24, 2020 1:25 pm I just used the same title from Reuters. :-)
So here's your chance to do better than Reuters' copy editor.
Exactly. Don't get me started on how often the media publishes misleading headlines.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by Gadget »

If Ally removes savings account transfer limits (or any bank with a high savings rate), I'll likely be moving my banking from Fidelity CMA to Ally.

I just asked Ally customer support, and they said they have no company updates on the recent announcement at this time.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by Makefile »

JonnyB wrote: Fri Apr 24, 2020 2:54 pm This is interesting because it means that the Federal Reserve has given up on their decades long requirement for bank reserve requirements. For years the requirement was that banks maintain 10% cash either in their vaults or on deposit at the Federal Reserve Bank for every dollar of demand deposits, which means primarily checking accounts. Bank savings accounts were not considered demand deposits because there were limitations on the frequency of transactions.
I thought that banks had a loophole for reserve requirements anyway which is deposit reclassification, and that reserve requirements are just a holdover from the Great Depression. If you read the fine print in the account agreement, often it works something like this:
  • Behind the scenes your checking account is actually split into a checking and a money market account that you can't see
  • At the beginning of each month the the bank shifts some or all of the balance, on their books, as if it's in money market
  • They take withdrawals from checking or money market as their statistics predict, so that they can keep as much in the money market side as possible.
  • If you withdraw more than they anticipated, the worst that happens is the entire account is re-classified as checking for the rest of the month.
  • None of this matters from the customer's perspective
Also. Remember when the limit was only 3 rather than 6 if it was a transfer to an outside account?
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by anon_investor »

I opened up a few Ally Bank savings accounts and pay all my bill via direct debit from the various accounts. I only opened multiple accounts in order to have sufficient withdrawals to pay for all of my various bills without exceeding the 6 withdrawal limit on any one account. But even if they got ride of the 6 withdrawal limit, I would likely keep all my accounts. My system works well now. I have one account dedicated to just my mortgage and utility bills; I have another just for my credit cards; another just for my spouse's credit cards; then I have one that I use as our actual savings account and do not direct debit anything from it.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by Oicuryy »

JonnyB wrote: Fri Apr 24, 2020 2:54 pm So the Federal Reserve came up with a new method of keeping these excess reserves from leaking into the economy and causing inflation. The Federal Reserve for the first time in 2008 started paying banks interest on their excess reserves. By varying the the interest rate, the Federal Reserve can throttle the incentive for a bank to lend. If the bank can make a risk free higher rate from their deposit at the Fed, they are less likely to loan for more risky investments.
Can you expand on this part please. Why would the ability to earn interest on reserves discourage banks from creating more money from thin air and earning interest on it too? Aren't two sources of interest better than one?

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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by JonnyB »

Oicuryy wrote: Fri Apr 24, 2020 3:49 pm
JonnyB wrote: Fri Apr 24, 2020 2:54 pm So the Federal Reserve came up with a new method of keeping these excess reserves from leaking into the economy and causing inflation. The Federal Reserve for the first time in 2008 started paying banks interest on their excess reserves. By varying the the interest rate, the Federal Reserve can throttle the incentive for a bank to lend. If the bank can make a risk free higher rate from their deposit at the Fed, they are less likely to loan for more risky investments.
Can you expand on this part please. Why would the ability to earn interest on reserves discourage banks from creating more money from thin air and earning interest on it too? Aren't two sources of interest better than one?

Ron
The reason is that banks don't just hold reserves for lending requirements. They also need reserves to handle day to day transactions. Every time a check is deposited, the Federal Reserve makes a debit in the reserve account of the issuing bank and a deposit in the bank cashing the check. So there is a flow of reserves from one bank to another bank. Depending on the day's flow, a bank can end up short of reserves to cover the checks written on their bank. In that case they need to borrow reserves overnight to cover their deficit. The willingness of other banks to loan reserves depends on the interest on excess reserves.

For example, assume a bank has $10 million in reserves. It makes a $10 million loan under the new rules with no reserve requirements. It writes a $10 million check and the borrower deposits it in another bank. When that check clears at the Fed, $10 million is deducted from the lenders reserves and $10 million is added to the reserves of the bank that gets the deposit. So the lending bank now has no reserves and the deposit bank now has an additional $10 million in reserves. The deposit bank also creates a deposit of $10 million in the checking account that the borrower can spend and that is where the money creation occurs.

So the first bank cannot make any more loans because it doesn't have the reserves to cover any checks written on that loaned money. The second bank however has $10 million it can loan.

The newly created money sloshes back and forth between banks as checks are cashed on each other, but at any one time if a bank runs short of reserves, it can't make any more loans because it can't cover the checks written on that loan. To make more loans it has to borrow reserves from another bank that has lots of excess reserves, but banks my not be willing to lend if the Fed's interest on excess reserves is higher than the bank is willing to pay. The rate the bank pays on borrowing reserves must be lower than the opportunities to issue commercial loans at higher rates.

So I think to answer you question, banks need reserves for every day transactions as well as loans. When a bank issues a loan and the check is cashed, reserves move out of its reserve account. So you can't lend the same money to commercial borrowers and to another bank at the same time.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by Oicuryy »

JonnyB,

That doesn't sound right. If you had a chance to trade away an asset that was paying you 0.1% interest (IOR rate) for one that paid 3.25% or more (prime rate) wouldn't you do it? Even if you had to pay an additional 0.05% interest (effective federal funds rate) to borrow the asset to trade away, wouldn't you still do it? And there is a good chance you will soon get the asset back when another bank makes a loan that gets deposited in your bank.

There must be some other reason banks aren't creating more money.

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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by ofcmetz »

JonnyB wrote: Fri Apr 24, 2020 2:54 pm This is interesting because it means that the Federal Reserve has given up on their decades long requirement for bank reserve requirements.
Good summary of reserve requirements and history. You write like you might be my Econ Professor. I'm taking Econ "Money and Banking" this semester and this was a good review for a section of my upcoming final.

I'm assuming that this further blurs the line between M1 and M2 as well. Basically it seems a checking account and a savings account are pretty much the same thing. Although with online banking that seems to have almost happened.

I agree with the previous poster that it makes sense to have both for security reasons to keep the checking account from being temporarily drained by fraud (theft).
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by JonnyB »

Oicuryy wrote: Sat Apr 25, 2020 12:58 am JonnyB,

That doesn't sound right. If you had a chance to trade away an asset that was paying you 0.1% interest (IOR rate) for one that paid 3.25% or more (prime rate) wouldn't you do it? Even if you had to pay an additional 0.05% interest (effective federal funds rate) to borrow the asset to trade away, wouldn't you still do it? And there is a good chance you will soon get the asset back when another bank makes a loan that gets deposited in your bank.

There must be some other reason banks aren't creating more money.

Ron
That's the problem with the zero lower bound in times of low demand. The Fed has recently lowered it's interest rate on excess reserves to 0.1% to get banks to lend more and banks still don't find enough opportunities to make loans they consider worth the risk. Just a few months ago the rate on excess reserves was 2.4% because the Fed was trying to slow the rate of lending. Now they can't get banks to issue more loans even when the alternative is 0.1%. That's a recession.

The next possible step would be negative rates on excess reserves. But it becomes like pushing on a string. You aren't going to get more lending without more demand.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by FedGuy »

Thank you for posting this. I don't know how much is my bank's policy and how much was mandated by the Fed, but my bank allows unlimited transactions at ATMs while limiting online transactions. My bank is right across from my office, so I think nothing of running across the street multiple times a month and moving money into my checking account as needed. Since visiting the bank is now more complicated because of the coronavirus, I've been doing a couple of big online transfers per month. I'm not sure when or if my bank is changing their policy, but it's nice to at least hope that I'll soon be able to make online transfers at will without worrying about a transaction limit.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by elderwise »

JonnyB wrote: Fri Apr 24, 2020 5:21 pm
Oicuryy wrote: Fri Apr 24, 2020 3:49 pm
JonnyB wrote: Fri Apr 24, 2020 2:54 pm So the Federal Reserve came up with a new method of keeping these excess reserves from leaking into the economy and causing inflation. The Federal Reserve for the first time in 2008 started paying banks interest on their excess reserves. By varying the the interest rate, the Federal Reserve can throttle the incentive for a bank to lend. If the bank can make a risk free higher rate from their deposit at the Fed, they are less likely to loan for more risky investments.
Can you expand on this part please. Why would the ability to earn interest on reserves discourage banks from creating more money from thin air and earning interest on it too? Aren't two sources of interest better than one?

Ron
The reason is that banks don't just hold reserves for lending requirements. They also need reserves to handle day to day transactions. Every time a check is deposited, the Federal Reserve makes a debit in the reserve account of the issuing bank and a deposit in the bank cashing the check. So there is a flow of reserves from one bank to another bank. Depending on the day's flow, a bank can end up short of reserves to cover the checks written on their bank. In that case they need to borrow reserves overnight to cover their deficit. The willingness of other banks to loan reserves depends on the interest on excess reserves.

For example, assume a bank has $10 million in reserves. It makes a $10 million loan under the new rules with no reserve requirements. It writes a $10 million check and the borrower deposits it in another bank. When that check clears at the Fed, $10 million is deducted from the lenders reserves and $10 million is added to the reserves of the bank that gets the deposit. So the lending bank now has no reserves and the deposit bank now has an additional $10 million in reserves. The deposit bank also creates a deposit of $10 million in the checking account that the borrower can spend and that is where the money creation occurs.

So the first bank cannot make any more loans because it doesn't have the reserves to cover any checks written on that loaned money. The second bank however has $10 million it can loan.

The newly created money sloshes back and forth between banks as checks are cashed on each other, but at any one time if a bank runs short of reserves, it can't make any more loans because it can't cover the checks written on that loan. To make more loans it has to borrow reserves from another bank that has lots of excess reserves, but banks my not be willing to lend if the Fed's interest on excess reserves is higher than the bank is willing to pay. The rate the bank pays on borrowing reserves must be lower than the opportunities to issue commercial loans at higher rates.

So I think to answer you question, banks need reserves for every day transactions as well as loans. When a bank issues a loan and the check is cashed, reserves move out of its reserve account. So you can't lend the same money to commercial borrowers and to another bank at the same time.
Johny B

Thanks for your detailed response, is whats happening now similar to what happened before the Great Depression,

and is the point where banks have excess reserve but no demand a sign of an incoming recession?
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by Oicuryy »

JonnyB wrote: Sat Apr 25, 2020 9:13 am banks still don't find enough opportunities to make loans they consider worth the risk.
Isn't that the same as saying borrowers are not willing to pay the interest rate that banks charge? Interest rates limit the demand for loans not the supply. If interest rates can limit money creation by limiting the demand for loans then there is no need to limit the supply of loans with reserve requirements and transfer count restrictions.

I believe IOR works by setting a floor under the federal funds rate. The federal funds rate, in turn, sets a floor under the prime rate and other loan rates banks charge. Those rates then limit the demand for loans and that limits inflationary money creation.

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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by JonnyB »

Oicuryy wrote: Sat Apr 25, 2020 12:02 pm If interest rates can limit money creation by limiting the demand for loans then there is no need to limit the supply of loans with reserve requirements and transfer count restrictions.
That's what I said above in my first post. The Federal Reserve has abandoned its decades of using reserve requirements to throttle lending because that lever no longer works with large excess reserves. So in late 2008, the Fed substituted a brand new tool of paying interest on reserves to throttle lending. This puts a floor on the rate banks are willing to lend to each other which in turn slows the creation of loans. Since there are no longer reserve requirements, there's no need to put limits on savings accounts. Savings become demand deposits just like checking accounts.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by Turbo29 »

Makefile wrote: Fri Apr 24, 2020 3:39 pm

I thought that banks had a loophole for reserve requirements anyway which is deposit reclassification, and that reserve requirements are just a holdover from the Great Depression. If you read the fine print in the account agreement, often it works something like this:
  • Behind the scenes your checking account is actually split into a checking and a money market account that you can't see
  • At the beginning of each month the the bank shifts some or all of the balance, on their books, as if it's in money market
  • They take withdrawals from checking or money market as their statistics predict, so that they can keep as much in the money market side as possible.
  • If you withdraw more than they anticipated, the worst that happens is the entire account is re-classified as checking for the rest of the month.
  • None of this matters from the customer's perspective
Also. Remember when the limit was only 3 rather than 6 if it was a transfer to an outside account?
I remember this in the fine print about my checking account, it was actually a checking account and a savings sub-account. It worked exactly as you say. I also remember the limit on transfers being 3 at some time in the past.
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EFF_fan81
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by EFF_fan81 »

anon_investor wrote: Fri Apr 24, 2020 3:43 pm I opened up a few Ally Bank savings accounts and pay all my bill via direct debit from the various accounts. I only opened multiple accounts in order to have sufficient withdrawals to pay for all of my various bills without exceeding the 6 withdrawal limit on any one account. But even if they got ride of the 6 withdrawal limit, I would likely keep all my accounts. My system works well now. I have one account dedicated to just my mortgage and utility bills; I have another just for my credit cards; another just for my spouse's credit cards; then I have one that I use as our actual savings account and do not direct debit anything from it.
Similar. I have checking and two savings linked at Ally. I'll probably keep this as things change, but instead using both savings for withdrawals because of the six transaction limit I'll do:

Checking for small items, unscheduled items, and fraud protection.
Savings for large, recurring items (mortgage, credit cards, any regular vendor I trust).
Second savings that just works as a real savings account holding money.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by anon_investor »

EFF_fan81 wrote: Sun Apr 26, 2020 7:48 am
anon_investor wrote: Fri Apr 24, 2020 3:43 pm I opened up a few Ally Bank savings accounts and pay all my bill via direct debit from the various accounts. I only opened multiple accounts in order to have sufficient withdrawals to pay for all of my various bills without exceeding the 6 withdrawal limit on any one account. But even if they got ride of the 6 withdrawal limit, I would likely keep all my accounts. My system works well now. I have one account dedicated to just my mortgage and utility bills; I have another just for my credit cards; another just for my spouse's credit cards; then I have one that I use as our actual savings account and do not direct debit anything from it.
Similar. I have checking and two savings linked at Ally. I'll probably keep this as things change, but instead using both savings for withdrawals because of the six transaction limit I'll do:

Checking for small items, unscheduled items, and fraud protection.
Savings for large, recurring items (mortgage, credit cards, any regular vendor I trust).
Second savings that just works as a real savings account holding money.
Do you use Ally's overdraft protection? Without transfer limits, one could effectively could leave $0 in checking and 100% in savings.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by EFF_fan81 »

anon_investor wrote: Sun Apr 26, 2020 8:23 am
EFF_fan81 wrote: Sun Apr 26, 2020 7:48 am
anon_investor wrote: Fri Apr 24, 2020 3:43 pm I opened up a few Ally Bank savings accounts and pay all my bill via direct debit from the various accounts. I only opened multiple accounts in order to have sufficient withdrawals to pay for all of my various bills without exceeding the 6 withdrawal limit on any one account. But even if they got ride of the 6 withdrawal limit, I would likely keep all my accounts. My system works well now. I have one account dedicated to just my mortgage and utility bills; I have another just for my credit cards; another just for my spouse's credit cards; then I have one that I use as our actual savings account and do not direct debit anything from it.
Similar. I have checking and two savings linked at Ally. I'll probably keep this as things change, but instead using both savings for withdrawals because of the six transaction limit I'll do:

Checking for small items, unscheduled items, and fraud protection.
Savings for large, recurring items (mortgage, credit cards, any regular vendor I trust).
Second savings that just works as a real savings account holding money.
Do you use Ally's overdraft protection? Without transfer limits, one could effectively could leave $0 in checking and 100% in savings.
I have signed up for it. I usually do leave a $1-2 grand in checking anyways, but then every so often that dwindles and once or twice the overdraft has actually kicked in.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by anon_investor »

EFF_fan81 wrote: Sun Apr 26, 2020 8:26 am
anon_investor wrote: Sun Apr 26, 2020 8:23 am
EFF_fan81 wrote: Sun Apr 26, 2020 7:48 am
anon_investor wrote: Fri Apr 24, 2020 3:43 pm I opened up a few Ally Bank savings accounts and pay all my bill via direct debit from the various accounts. I only opened multiple accounts in order to have sufficient withdrawals to pay for all of my various bills without exceeding the 6 withdrawal limit on any one account. But even if they got ride of the 6 withdrawal limit, I would likely keep all my accounts. My system works well now. I have one account dedicated to just my mortgage and utility bills; I have another just for my credit cards; another just for my spouse's credit cards; then I have one that I use as our actual savings account and do not direct debit anything from it.
Similar. I have checking and two savings linked at Ally. I'll probably keep this as things change, but instead using both savings for withdrawals because of the six transaction limit I'll do:

Checking for small items, unscheduled items, and fraud protection.
Savings for large, recurring items (mortgage, credit cards, any regular vendor I trust).
Second savings that just works as a real savings account holding money.
Do you use Ally's overdraft protection? Without transfer limits, one could effectively could leave $0 in checking and 100% in savings.
I have signed up for it. I usually do leave a $1-2 grand in checking anyways, but then every so often that dwindles and once or twice the overdraft has actually kicked in.
So the overdraft works well? Good to know. I have signed up for it too but never used it. I usually keep a couple hundred in my checking above any anticipated debits.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by stilllurking »

anon_investor wrote: Sun Apr 26, 2020 8:23 amDo you use Ally's overdraft protection? Without transfer limits, one could effectively could leave $0 in checking and 100% in savings.
I do this all the time. No issues with the overdraft protection and it comes out of your savings to the nearest $100. I wish I could schedule payments from the savings account to bypass this need for overdraft protection now that the limits have been removed.

Don't forget, Ally is already ceasing fees on over 6 transfers a month until July 18. You have a few months to try it without the fear of a fee being charged.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by anon_investor »

stilllurking wrote: Sun Apr 26, 2020 8:53 am
anon_investor wrote: Sun Apr 26, 2020 8:23 amDo you use Ally's overdraft protection? Without transfer limits, one could effectively could leave $0 in checking and 100% in savings.
I do this all the time. No issues with the overdraft protection and it comes out of your savings to the nearest $100. I wish I could schedule payments from the savings account to bypass this need for overdraft protection now that the limits have been removed.

Don't forget, Ally is already ceasing fees on over 6 transfers a month until July 18. You have a few months to try it without the fear of a fee being charged.
You can schedule transfers (one time or reoccuring) from savings to checking. I do that for my kids daycare since they can only do direct debit from a checking account. Since the debit is around the same time every month, I just have a regular scheduled transfer from my savings to checking to cover the cost.

But with no transfer limits, what is your concern with the overdraft usage? Fraud? If so you could use 1 savings account as the overdraft account and keep the rest in your real savings account. The savings accounts I directly pay from, I only keep at most a couple hundred bucks over anticipated debits, and the bulk of my savings in a account that is not linked to any outside party.
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Re: Federal Reserve scraps transfer limits on bank savings accounts

Post by DB2 »

Church Lady wrote: Fri Apr 24, 2020 12:28 pm I'm more worried about this part of the article:
In March, the Fed scrapped its reserve requirements for bank accounts as part of a broader effort to keep funds flowing to businesses and households amid the pandemic. Previously, banks were required to hold a certain amount of reserves against funds in “transaction accounts,” like checking accounts, that saw money frequently coming and going.
Removing reserve requirements seems like an absurdly bad idea. Trouble ahead for banks?
Perhaps so, but if needed, they will be 'saved' again.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by MikeG62 »

Update to Federal Reserve FAQ in late July 2020 indicates that this change is not temporary change:

Are the recent amendments to Regulation D temporary or permanent?
On April 24, 2020, the Board of Governors issued an interim final rule amending its Regulation D to delete the six-per-month limit on convenient transfers from "savings deposits." The underlying reason enabling the changes in Regulation D is the FOMC’s choice of monetary policy framework of an ample reserve regime. In such a regime, reserve requirements are not needed. As a result, the distinction made by the transfer limit between reservable and non-reservable accounts is also not necessary. The Committee’s choice of a monetary policy framework is not a short-term choice. The Board does not have plans to re-impose transfer limits but may make adjustments to the definition of savings accounts in response to comments received on the Board’s interim final rule and, in the future, if conditions warrant.

Wonder why banks (particularly online banks) have not responded by suspending the six transaction limit? I know Ally did (back in April), but no word from others like Marcus.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by JoMoney »

MikeG62 wrote: Fri Aug 21, 2020 6:13 am...
Wonder why banks (particularly online banks) have not responded by suspending the six transaction limit? I know Ally did (back in April), but no word from others like Marcus.
The bank I use continues to show a "Reg D Count" on the primary savings account, and lists the maximum 6 withdrawals in a statement period in their terms sheet.
I'm sure it will be updated and more common place over time when there are other changes required, but there's nothing dis-allowing banks from keeping the rule in place for the time being. There's no incentive for the bank to change the rule quickly. My belief is it will be a very slow moving process for banks to grudgingly update account terms and conditions, policies, and associated software rules while/when other changes get made over time.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by anon_investor »

JoMoney wrote: Fri Aug 21, 2020 6:27 am
MikeG62 wrote: Fri Aug 21, 2020 6:13 am...
Wonder why banks (particularly online banks) have not responded by suspending the six transaction limit? I know Ally did (back in April), but no word from others like Marcus.
The bank I use continues to show a "Reg D Count" on the primary savings account, and lists the maximum 6 withdrawals in a statement period in their terms sheet.
I'm sure it will be updated and more common place over time when there are other changes required, but there's nothing dis-allowing banks from keeping the rule in place for the time being. There's no incentive for the bank to change the rule quickly. My belief is it will be a very slow moving process for banks to grudgingly update account terms and conditions, policies, and associated software rules while/when other changes get made over time.
Is Marcus the only bank that has removed the limit?
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by indexfundfan »

MikeG62 wrote: Fri Aug 21, 2020 6:13 am Wonder why banks (particularly online banks) have not responded by suspending the six transaction limit? I know Ally did (back in April), but no word from others like Marcus.
I think you got it mixed up. Marcus removed the limits but not Ally. Ally only suspended the over-the-limit fee for a few months due to Covid-19.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by Cheez-It Guy »

MikeG62's post can be read in several ways.

Marcus has indeed noted the change. They still show the monthly withdrawal count, but coupled with a pop-up note that says:

"Withdrawals this month
Due to a change in federal law, you are now free to make more than 6 withdrawals or transfers in a month. At this time, there is no limit to the number of withdrawals or transfers you can make."
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by MikeG62 »

indexfundfan wrote: Fri Aug 21, 2020 6:37 am
MikeG62 wrote: Fri Aug 21, 2020 6:13 am Wonder why banks (particularly online banks) have not responded by suspending the six transaction limit? I know Ally did (back in April), but no word from others like Marcus.
I think you got it mixed up. Marcus removed the limits but not Ally. Ally only suspended the over-the-limit fee for a few months due to Covid-19.
Sorry, I was actually not aware that Marcus had removed it. I saw the temporary lifting of the fee from Ally. In fact, got a note from Ally this morning saying. "You reached your transaction limit for this statement cycle....there’s a $10 excessive transaction fee for each transaction that exceeds the limit of 6. However, we’re temporarily refunding this fee to help those of you impacted by COVID-19."

Sounds kind of vague (how do they determine who has been impacted by Covid-19)? Thus the reason for the research this issue today.

Would be easier if banks just addressed this. Perhaps they don't want to lose the fees some charge when people go over?
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by Cheez-It Guy »

I think you just answered your own question.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by Cheez-It Guy »

So if this change is indeed permanent, and if Marcus has no fees for exceeding the old limit, is there any good reason not to change my credit card autopay to the Marcus savings account instead of big bank no-interest checking? I have three cards, so that would be up to three additional debits per month. Would mean less time with the payment funds sitting in a non-interest-bearing account.
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Re: Federal Reserve scraps transfer count limits on savings accounts

Post by anon_investor »

Cheez-It Guy wrote: Sun Aug 30, 2020 6:03 pm So if this change is indeed permanent, and if Marcus has no fees for exceeding the old limit, is there any good reason not to change my credit card autopay to the Marcus savings account instead of big bank no-interest checking? I have three cards, so that would be up to three additional debits per month. Would mean less time with the payment funds sitting in a non-interest-bearing account.
Do it . I have a dedicated Ally savings account used for just that purpose.
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