The Dueling Intraday Demands on Reserves

Adam Copeland and Sarah Wang

No 20241021, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: A central use of reserves held at Federal Reserve Banks (FRBs) is for the settlement of interbank obligations. These obligations are substantial—the average daily total reserves used on two main settlement systems, Fedwire Funds and Fedwire Securities, exceeds $6.5 trillion. The total amount of reserves needed to efficiently settle these obligations is an active area of debate, especially as the Federal Reserve’s current quantitative tightening (QT) policy seeks to drain reserves from the financial system. To better understand the use of reserves, in this post we examine the intraday flows of reserves over Fedwire Funds and Fedwire Securities and show that the mechanics of each settlement system result in starkly different intraday demands on reserves and differing sensitivities of those intraday demands to the total amount of reserves in the financial system.

Keywords: reserve balances; intraday; quantitative tightening (QT) (search for similar items in EconPapers)
JEL-codes: E42 G14 (search for similar items in EconPapers)
Date: 2024-10-21
New Economics Papers: this item is included in nep-ban and nep-mon
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