The payment system benefits of high reserve balances

James McAndrews and Alexander Kroeger

Journal of Payments Strategy & Systems, 2016, vol. 10, issue 1, 72-83

Abstract: The policy measures since the financial crisis have greatly expanded the size of the Federal Reserve’s balance sheet, and have thus also raised the level of aggregate bank reserves. Over the same time period there has been a significant shift in the timing of payments over the Federal Reserve’s Fedwire Funds service toward earlier settlement. This paper documents this timing change and presents regression results that suggest that the increase in overall reserve balances explains the vast majority of this development. This paper also discusses the benefits of high aggregate reserve balances for the robustness of the payment system and its potential implications for policy going forward.

Keywords: Fedwire; reserves; settlement liquidity; risk; government policy; Federal Reserve (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:aza:jpss00:y:2016:v:10:i:1:p:72-83

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