I have been watching a chart of Borrowed Bank Reserves for several weeks. The action is unprecedented.



Borrowed Reserves of Depository Institutions







click on chart for sharper image.



The NFORBES Chart above is courtesy of St. Louis Fed.



Here's an interesting excerpt from the book Investing Public Funds by Girard Miller about borrowed reserves.



" Another useful indicator of the Federal Reserve's relative monetary policies can be found weekly in the Federal Reserve data. A key statistic is the net free reserves or net borrowed reserves line item. This statistic measures the degree to which depository institutions have found it necessary to obtain funds in the Fed Funds market and through the Fed discount window in order to obtain required reserves.



During periods of central bank credit-tightening operations, the depository sector might find it necessary to borrow funds to meet reserve requirements. This practice results in net borrowed reserves, which shows as a negative number. Conversely, if ample funds are available through the banking system to meet reserve requirements, banks can become net lenders of reserves through the Fed Funds markets "

Table 2 Not Seasonally Adjusted Reserves in Millions of Dollars

January 29 TAF Auction

The Federal Reserve's latest loan auction through its Term Auction Facility (TAF) produced the lowest interest rate, lowest bid-to-cover ratio and fewest bidders yet. The lower demand suggests an improved liquidity situation in financial markets.



Yesterday's auction of 30 bln usd 28-day loans came in at a 3.123 pct interest rate, a 1.25 bid-to-cover ratio and 52 bidders. This was the fourth auction under the new TAF program designed to relieve pressure in the short-term, inter-bank funding market.

The Role Of The Monolines

If bond insurers are downgraded a lot, banks will need as much as $143 billion in fresh capital to absorb the impact, Barclays Capital estimated Friday. Citigroup Inc. (C), Merrill Lynch & Co. (MER) Bank of America Corp. (BAC), and Wachovia Corp. (WB) are among U.S. banks most exposed to bond insurers, or "monolines" as they're also known, Barclays Capital wrote to investors.

The world's financial institutions will have to write down a further $300bn (£152bn) of US sub-prime losses before the crisis is over, according to a study by consulting firm Oliver Wyman.



"While governments, central banks and regulators scramble to address the aftermath of the sub-prime fallout, several other crises are mounting."



Tumbling property prices - especially in the UK and Spain - a weakening dollar, a possible collapse in commodity prices, and a fall in Chinese and Indian stocks will "disrupt" the global economy, the report claimed.

Large money center banks have virtually frozen their balance sheets, reluctant to lend even to good credit

Banks Raise ATM Fees to $3.00

"They're looking for ways to make up for the losses and nickel and diming appears to be the only way they can do it," Consumer Affairs analyst Joseph Enoch said. Today, the average ATM fee is $1.78, while five years ago it cost a little more than a $1 to retrieve money from a bank with which you didn't have an account.



In some areas, JP Morgan Chase, Bank of America and Wachovia fees have hit $3 for non-customers. Some banks now charge their own customers a fee for the convenience of using an ATM to the disdain of some.

Savings Deposit Rates

$3.00 ATM Fees Will Backfire

Some customers will stop using anything but their own bank's ATMs. Instead of getting $1.50 banks will get nothing.





Some customers will opt to max out the cash they take on each transaction to minimize the number of transaction fees.





Banks charging their own customers will find many switching banks out of resentment.

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