US treasury sits on $1.46tn of unused funds

New figures show $1.46tn (€1.09tn) treasure chest sitting idly at the US Federal Reserve, excess reserves from nervous US banks.

And it is forecast to reach $2.6 trillion in the next year. The cash does not do anything for the troubled American economy, say leading analysts, who have called for the bounty to be freed up to create jobs and spark lending. Instead, it sits in Fed chairman Ben Bernanke’s vault earning banks a miserable rate of return of 0.25%.

This massive rainy day fund, started in 2010 as a way for banks to have a pool of assets to tap should they have liquidity problems, has now become a deluge. The accounts at the Fed are now two times larger than the original $700 billion required by then Treasury chief Hank Paulson in 2008.

The banks see it as an asset to be accessed to meet government regulations such as recapitalisation programs, toxic asset purchases and global economic fears as well as meeting the Fed’s raising of banks’ liquidity requirements and their risk parameters on lending.

While Washington wants to avoid another taxpayer bailout by having the needed funds available, critics see it as a poor use of capital.

“The resources are not going to where the market wants them but to where the government directs them, to where central bankers direct them,” argued Peter Schiff, chief executive of Euro Pacific Capital.