What would happen if the Federal Reserve increased the reserve requirement in banks?

Answer 1

• There would be less loans made and the overall money supply would shrink and we woulnd experience deflation which is bad for the economy.
• We would experience less booms and busts (ie less volatility) but economic growth would be slower,
• Its a bit like lowering the speed limit it makes things safer but it becomes rediculous if the speed limit is 20kmph. sure we would be really safe but we would suffer in other aspects,
• In the same way increasing reserve ratios makes things safer but if you take them too high economic activity slows than and it slows down the economy.

First the Federal Reserve is a private/quasi-public bank that is not for the government or the people. They are the reasons for the hyper-inflation and the devaluing the value of our currency. We need to have the H.R. bill to pass the auditing of this corrupt system. If it were to be audited a rookie accountant could smell problems. Anyway I digress. To answer your question, you must understand a little something called fractional reserve banking. To simplify..... a bank needs capital to loan out in the form of mortgages and loans, so they can constantly collect interest. Interest is a banks way of making it's own capital. Unfortunetly they borrow all of their money to collect more interest payments. Well if banks didn't have customers they wouldn't have deposits. The banks follow a percentage given out by the Federal Reserve, varying in different times, that tells banks the amount to hold as a reserve in their vaults. The rest is considered excessive assets and can be loaned out, so the banks collect 6-8% interest and pay us 1% for using our money. Isn't that fair? So if the Fed said there is a 10% reserve requirements, a bank with $100,000 would keep $10,000 and consider the other $90,000 excessive and therefore borrows it out with interest. Now like in 1929 when the Depression brew, banks had people mass withdrawl their money but the banks had borrowed it all out. Then they have to call in loans. If a bank can't receive capital from another bank or by liquifying their assets for capital, they will go on what's called a "bank run". Hope this answers your question. I suggest reading about the Fed, the people that work there, then switch to gov't roles to do the bidding of this bank. Also all the main banks are the spreaders of the Feds bidding.

decrease in the money supply

Answer 2

If the Federal Reserve decided to increase the reserve requirement in banks, it is likely that banks would be targeted more often for robbery. This would be because there would be more money in every federally-insured bank.

Answer 3

If the Fed decreases the reserve requirements, the money available with banks increases, thus the money supply of the economy increases eventually.