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Falling reserve balances and the federal funds rate

R. Spence Hilton and Paul Bennett

Current Issues in Economics and Finance, 1997, issue may

Abstract: The growth of \\"sweeps\\"--a banking practice in which depository institutions shift funds out of customer accounts subject to reserve requirements--has reduced the required balances held by banks in their accounts at the Federal Reserve. This development could lead to greater volatility in the federal funds rate as banks try to manage their accounts with very low balances. An analysis of the evidence suggests that the volatility of the funds rate is rising slightly, but not enough to disrupt the federal funds market or affect the implementation of monetary policy.

Keywords: Federal funds market (United States); Bank reserves (search for similar items in EconPapers)
Date: 1997
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