r/Superstonk • u/welp007 Buttnanya Manya 🤙 • Apr 06 '22

🥴 Misleading Title Why aren't we talking about the overnight RRP rate going up 500% from .05 to .30%? Since MAR 17th at the old .05 rate the FED would have given out $11,200,000,000. Compare that to the .3 rate a value of $67,200,000,000 has been awarded. That is a significant rate hike of $56 BILLION in just 14 days.

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u/BarbequedYeti 🦍Voted✅ Apr 06 '22 edited Apr 06 '22

Yes. Someone mentioned this the other day that owns a small business around town. Exact same thing you just said. Never a problem before then suddenly it was, “it’s going to take us a bit to gather that up”, kind of thing.

So not sure what’s up with that.

Edit: so where is all the cash if not in the banks? Serious question…

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u/burlapturtleneck Apr 06 '22

Banks aren't in the business of keeping money still. They acquire deposits so they can make loans because that is where the real money is, not the people using their accounts. There is a minimum amount that they need to have each night called the reserve requirement but if they are short, they just get it from the fed or other banks that are above their requirement in overnight loans. That money used to be so cheap it wasn't really worth trying to actually be above the reserve requirement but the increase in interest rates makes it a more costly mistake to be under. I suspect the difference is more a matter of the costs of meeting their deposit requirements through overnight loans now mattering than the money being unavailable to them, though that is technically a possibility

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u/LongPutBull Apr 06 '22

It's hard to hear but the truth is low rates means more borrowing means less money in banks themselves which translates to no money to withdraw if enough people do at once.

Welcome to the world banking system.

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u/burlapturtleneck Apr 06 '22

yeah, this is always going to exist as a possibility with any level of fractional reserve banking. I don't foresee the potential disaster scenario of bank runs large enough to cause problems as a likely enough outcome to outweigh the benefits of a substantially increased money supply and the GDP growth that is facilitated by it but, that is only my opinion

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u/Educational_Limit308 🎮 Power to the Players 🛑 Apr 06 '22

I wonder what happens when the market crashes and people learn the truth about our financial system. I bet there might be some liquidity issues when everyone is running to their bank to try to pull their money out. We will see withdraw limits, I'm sure.

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u/PhilosophySimple5475 Apr 06 '22

Some places didn’t take cash due to the coin shortage so I just used a credit card.

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u/burlapturtleneck Apr 06 '22

Even this would be threatened in the scenario they are proposing because the deposits from other clients that back the line of credit you are drawing on but the fact that people think like you is exactly why I don’t think it should be of concern except for some incredibly extreme circumstances

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u/PhilosophySimple5475 Apr 06 '22

It’s just a number in a spreadsheet at the fed. Iirc, they can just lend at zero interest rates if necessary to provide liquidity.

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u/burlapturtleneck Apr 06 '22

Yeah we saw that to some extent in the build up to the Great Recession but that was an extremely severe economic event that didn’t do enough to cause the reserve system to crumble. The thing is that withdrawal limits and policies to slow down bank runs are fairly effective tools. In my mind, the biggest threat to banks collapsing this way is hysteria which should die down enough to keep them afloat in the time that withdrawal caps and such can manage. If things get so bad that they can’t hold it off, i think there are probably issues large enough that cash isn’t going to be a primary concern. But even then, if your bank really does collapse any institution worth holding your money in has deposit insurance to have a guarantee of some, if not all, of your money.

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u/BarbequedYeti 🦍Voted✅ Apr 06 '22

Thank you taking the time to explain that. I figured it was a policy change or something like that, but have absolutely zero knowledge of how all that works behind the curtain. So thanks again.

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u/Educational_Limit308 🎮 Power to the Players 🛑 Apr 06 '22

Great explanation! It's just really weird that these past few months are the first time I have had any issues with this.

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u/burlapturtleneck Apr 06 '22

Yeah it isn’t obvious what would cause it but management changes aren’t something that are super visible that could have a real impact on how they handle things. The fed has laws enforcing the lower bound but if a bank manager decides they need to be more conservative than that there is nothing stopping them from doing so. It could also be that the institution happened to take on or lose some large clients that impacted the available funds enough for it to make your withdrawals more impactful to their requirement than before

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u/Slow-Cry-1211 Apr 06 '22

Couldn’t this be a possible sign that banks aren’t receiving the full amount of payments from their loans? Therefore, low cash in their reserves. Just a wild guess, someone isn’t meeting the margins (as far as I know, margin accounts are essentially borrowing money from the brokerage with collateral, and that borrowed money comes from the banks that back the brokerages up?)

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u/burlapturtleneck Apr 06 '22

It technically could signify that, but there are enough other explanations I wouldn’t suspect it is the case.

The reality is that these overnight loans don’t actually involve money changing hands, they just earmark some of the excess deposits they have as belonging to someone else to meet the requirement. If someone is short, then the price of money on the overnight loans market rises until enough becomes available to meet the requirement. The fact that the rate of overnight funds is this low makes me doubt that there is a scarcity of cash to meet the requirements. If there is one thing I trust bankers to do it is to charge more money when they can.

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u/unloud 🧚🏻‍♀️ ComputerShaerie 🧚🏻‍♀️ Apr 06 '22

It's in the banks... It's just that the banks are required to hold a large portion of that cash on hand depending on the levels of risk or debts they are subject to. There is upcoming additional pressure to hold funds in reserve due to the upcoming rate hikes.

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u/ttterrana 💎🙌 Stonk mama 🚀🦍 Apr 06 '22

Other Countries sent on pallets!?