QE is bad for banks

The Fed’s quantitative easing policy per se is nothing but bad for banks.

1. QE forces the member banks to have excess reserves as assets on their balance sheet. These balances earn only .25% lowing the banking system’s net interest margin, return on assets, and return on equity.

2. To maintain high enough average net interest margins (that include the holding of excess reserves) to attract capital, banks tend to charge a bit more for loans to business and consumers, which causes more borrowers to go direct to credit markets and private lenders in general. In other words, QE tends to support disintermediation, as those who can avoid the banks do so.

3. QE lowers interest income paid by govt to the economy, as per the $100 billion of Fed profits turned over to treasury last year. Lower interest income makes the economy that much less credit worthy, thereby lowering its ability to borrow and service bank loans.

Bottom line- QE is a tax on the economy.
And QE is functionally the same as the tsy not having issued the securities in the first place.

However I favor, for example, the tsy not issuing anything longer than 3 mo bills, which is functionally ‘QE max’

Yes, it reduces aggregate demand.

But, for example, I’d rather get my aggregate demand, for a given size govt, from lower taxes than from the tsy or Fed paying interest.

But that’s just me.