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n. Illinois | John:
The regulators of the banks are using tighter and tighter limits on what banks can considered as acceptable liquidity forcing the banks to hold Treasuries as they are constantly changing what kind of deposits you can hold and still be consider to have adequate liquidity The holding of Treasuries limits the amount of new loans that can be made slowing down the rate of money growth.
Prime Example from the real world to illustrate.
State of Illinois has a program to fund operating needs of farmers, Its basically a link deposit program. The State of Illinois deposits cash to buy a CD at a predetermined interest rate (determined by the State) the bank can then lend against the CD with a limit on how much a interest mark up they can charge. Borrower gets a lower interest rate. Bank get a low cost Deposit State loses a little interest income. So we took advantage of this program in 2022 with a lot of these loans being booked; everyone is happy.
Regulator shows up later in the year. Declares that we have too much reliance on a single depositor (State of Illinois) I understand the concern if your deposit base is made up of a few large depositors as they can leave overnight creating a massive liquidity crunch leading to a bank run on deposits. So its a reasonable thing to worry about.
But they totally ignored that the State of Illinois has made a promise not to pull the CD's backing up the loans nor is there any history of it happening. So in 2023 we had to limit the use of this program because of some lousy interpretation of an arcane regulation dealing with how banks keep in compliance with liquidity.
Edited by Reality speaks 12/28/2025 12:30
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How money is created
