“Borrowing from the Fed to keep minimum reserves” doesn’t make any sense. Fed borrowings don’t count as Tier I or Tier II capital. And they have nothing to do with Loan Loss Reserves. Maybe you mean that banks are borrowing from the Fed to help maintain liquidity because the deposit market is very competitive? I don’t think this is necessarily a bad thing considering that the Fed Funds rate is below the rate being offered on most certificates of deposit these days.
“At what point do banks start to lose a significant % of deposits?” I don’t understand this question. All banks will move their deposit rates down, albeit to varying degrees. Where is a person going to go if they want an FDIC insured deposit? Are you suggesting that people will take their deposits out of banks due to the low rates and invest them in some other instrument with the same risk profile that’s got a higher yield? I’m curious as to what that instrument might be.
