Banks look to charge for holding your money

[DragonJoey3]

http://blogs.marketwatch.com/thetell/20 ... eing-lazy/

“From the Fed’s point of view, by discouraging banks from leaving their excess cash at the fed, they are encouraging banks to buy securities in the market (the same as the what they are doing with quantitative-easing purchases) or to go out into the market and make loans,”? said Joshua Siegel, managing partner and CEO at StoneCastle Partners.

Yet another reason to keep your cash in US Treasuries.  That's of course, assuming treasury yields don't go negative.

[Rien]

Also remember that a little while ago the bail-in was universalised.

If the banks charge a negative rate, what do you think will happen to their capital structure?

[Kshartle]

Also remember that a little while ago the bail-in was universalised.

If the banks charge a negative rate, what do you think will happen to their capital structure?

So if I mess this up someone please correct me.

If banks charge people interest on deposits, fewer people will keep their money there and some will withdraw. This will cause some banks to be less capitalized than they currently desire so they would need to sell assets to raise cash. The banks assets are longer term bonds and mortgages so this will have a negative impact on intermediate and longer term bonds, lowering their prices. Lower prices means the assets of the banks fall. They will need the FED to come in as the buyer of these bonds to support the prices and keep the banks solvent.

They also need mortgages to stay low or any idea that housing is recovering, which the FED is banking on to make the case the economy is improving (clearly emplyment shows it's not) will fall apart.

The charging of interest by banks on depositors means the FED needs to print more than it currently is. Now maybe that's my personal investment bias clouding my judgement since I don't own any bonds and very little cash.

Again if I've missed something obvious here or you disagree with the general impact to investments and monetary policy please show me where.