World banking leaders met today and agreed on new international banking rules that will hopefully prevent financial disasters. The biggest change was requiring the amount in reserve for each bank to be almost three times higher. Previously, the required rate was 2% - it will now be raised to 7% or higher. The new regulations will be phased in by 2015.
The president of the European Central Bank served as chairman of the group. Bernanke, the chairman of the Fed also served as leadership for the discussion. Financial leaders from 27 countries attended.
This is a concern because now these funds cannot be lent out and will decrease the overall available investment funds.
I forgot how increase in bank reserve will affect the market for money. Isn't it that if we reserve more money in the banks, then we will have less money to lend out, and thus cut the motives to invest from people? How does it help us? I must be wrong. Can you explain this to me please?
ReplyDeleteWhy was it previously so low internationally? In the US it is generally around 10% as discussed in class. Also will this actually make that much of a difference - are these rules usually adhered to and who enforces the rates that are agreed upon?
ReplyDeleteAs for enforcing the rules, not sure. i would hope the individual governments would. But this sounded to me like it was for the larger banks, the international ones.
ReplyDeleteIf banks are required to keep more money in reserve, then there is less to lend out. It would not have any affect on people putting their money in the bank or not - unless it encourages banks to be more desperate for peoples funds and therefore raises their interest rate OR causes people to save more because they feel more reassured.