I’m not trying to pull anyone out of the holiday spirit but you ought to know about this nifty bit of “carry trade” the banks have going right now, as per this piece from the WSJ. Since the Fed is now paying 0.50% interest on bank reserves held in their vaults—this is one way they’re targeting the new, higher Fed funds rate of 0.25%-0.50%–and banks can borrow overnight at 0.35%, there’s a 0.15% spread to be had. Foreign banks with branches here get the full spread, while domestics get less—about 0.07%–because they have to pay an FDIC fee.
An analyst cited in the piece estimated that the increase in IOER (interest on excess reserves) “will increase the Fed’s interest payments to banks to about $13 billion annually, assuming reserves stay at the same level.”
It’s a sweet freakin’ deal, you ask me (candidate Bernie Sanders complained about this in yesterday’s NYT). Like I said, it’s the holiday season and one doesn’t want to go to the negative place, but I’d like to think about how to claw these back through a tax on excess profits. Of course, that could undermine the Fed’s IOER tool, which is relatively new, so I need to think this through. But it’s a good e.g. of how some people have to bust their a__ to make ends meet, while others just have to move piles of money around.