Intraday Management of Bank Reserves: The Effects of Caps and Fees on Daylight Overdrafts

Diana Hancock and James A Wilcox

Journal of Money, Credit and Banking, 1996, vol. 28, issue 4, 870-908

Abstract: The Federal Reserve System imposes caps and charges fees on the negative intraday balances in banks' reserve accounts. i.e., on daylight overdrafts. Our empirical results suggest that caps alone did little to reduce daylight overdrafts in the aggregate. By contrast, the 1994 imposition of fees reduced the average daily maximum overdraft on the Fedwire system by about $93 billion and the average aggregate overdraft at any time during the day by about $43 billion. We also found statistical evidence that higher beginning-of-day reserve balances, lower aggregate dollar values of securities-related transfers over Fedwire, and lower shares of banks' assets funded with federal funds and repurchase agreements reduced daylight overdrafts. Copyright 1996 by Ohio State University Press.

Date: 1996
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