This is a direct giveaway to the banks at the expense of US taxpayers. The banks will shift as much of their excess cash as they can, subject to the $10 billion per bank limit, from their regular deposit accounts at the Fed (aka reserves) to these higher interest paying term deposits. This is cash which the Fed has given them for free in the first place. Earn free income from free money. Nice work if you can get it!


Meanwhile the Fed will continue to send them more free cash, week in and week out under QE, even though those amounts are somewhat reduced. The trick there is that the Taper does not reduce the excess cash the dealers get because the Fed has been matching QE to Treasury supply.

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