[JasonC]

Actually, the point is T-bills don't require reserves under the Basel capital standards, when held by a bank, whereas other securities with credit risk do. So while it reduces their earnings (since T-bills earn less), it increases their free reserves. Treasuries are "on special" across the markets right now because of this factor - that is why treasury to corporate spreads are so wide, etc. It is all a symptom of the banks being overleveraged and undercapitalized, due to their losses on mortgages etc.

[AndyJackson]

it increases their free reserves

Who would ever have known. You mean like now, through fractional reserve banking, the banks could end up lending out 10 times that amount. WOW! Really.

None of us would ever have guessed that this was the whole point of the exercise. I thought it was just to trade around some paper like Baghdad Todd explained, pointlessly since, after all it is just a loan that has to be repaid at the onerous terms set by the Federal Reserve. Never figured it might actually lead to an expansion of available credit.

I mean, man, like who knew? [/f'in sarcasm]

Palmer, do you smell pig stuff?