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Interest on reserves and daylight credit

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Author Info
Huberto M. Ennis
John A. Weinberg

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Abstract

Payment of interest on banks' reserves has long been an important subject of discussion in monetary policy forums. Recent legislation that allows the U.S. Federal Reserve to pay interest on reserves starting in 2011 has made these issues especially timely. By studying a simple model of the demand for reserves by banks, one can better understand the alternative schemes available for implementing the payment of interest on reserves. This article's primary focus is to investigate the possible consequences that paying interest on overnight bank balances can have on the use of daylight credit by banks. By paying interest on reserves and supplying a large amount of reserves, the central bank can limit the use of daylight credit by depository institutions.

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Publisher Info
Article provided by Federal Reserve Bank of Richmond in its journal Economic Quarterly.

Volume (Year): (2007)
Issue (Month): Spr ()
Pages: 111-142
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Handle: RePEc:fip:fedreq:y:2007:i:spr:p:111-142:n:v.93no.2

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Keywords: Banks and banking Interest

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Hancock, Diana & Wilcox, James A, 1996. "Intraday Management of Bank Reserves: The Effects of Caps and Fees on Daylight Overdrafts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 870-908, November. [Downloadable!] (restricted)
  2. James J. McAndrews, 2006. "Alternative arrangements for the distribution of intraday liquidity," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Apr. [Downloadable!]
  3. Whitesell, William, 2006. "Interest rate corridors and reserves," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1177-1195, September. [Downloadable!] (restricted)
  4. Xavier Freixas & Bruno Parigi, 1998. "Contagion and efficiency in gross and net interbank payment systems," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 247-274.
  5. Pierre-Olivier Weill, 2004. "Liquidity Premia in Dynamic Bargaining Markets," Econometric Society 2004 North American Winter Meetings 648, Econometric Society. [Downloadable!]
  6. Ruilin Zhou, 2000. "Understanding intraday credit in large-value payment systems," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 29-44. [Downloadable!]
  7. Leonardo Bartolini & Svenja Gudell & Spence Hilton & Krista Schwarz, 2005. "Intraday trading in the overnight federal funds market," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Nov. [Downloadable!]
  8. Mills, David Jr., 2006. "Alternative central bank credit policies for liquidity provision in a model of payments," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1593-1611, October. [Downloadable!] (restricted)
    Other versions:
  9. Furfine, Craig H, 2003. " Interbank Exposures: Quantifying the Risk of Contagion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 111-28, February.
  10. Bech, Morten L. & Garratt, Rod, 2003. "The intraday liquidity management game," Journal of Economic Theory, Elsevier, vol. 109(2), pages 198-219, April. [Downloadable!] (restricted)
    Other versions:
  11. Edward J. Green, 1999. "Money and debt in the structure of payments," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 13-29. [Downloadable!]
  12. Jean-Charles Rochet & Jean Tirole, 1996. "Interbank lending and systemic risk," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 733-765.
    Other versions:
  13. Freeman, Scott, 1996. "The Payments System, Liquidity, and Rediscounting," American Economic Review, American Economic Association, vol. 86(5), pages 1126-38, December. [Downloadable!] (restricted)
  14. Martin, Antoine, 2004. "Optimal pricing of intraday liquidity," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 401-424, March. [Downloadable!] (restricted)
    Other versions:
  15. Thorsten Koeppl & Cyril Monnet & Ted Temzelides, 2005. "Mechanism Design and Payments," 2005 Meeting Papers 11, Society for Economic Dynamics. [Downloadable!]
  16. Walter E. Beyeler & Robert J. Glass & Morten L. Bech & Kimmo Soramaki, 2006. "Congestion and cascades in payment systems," Staff Reports 259, Federal Reserve Bank of New York. [Downloadable!]
  17. David C. Mills, Jr. & Travis D. Nesmith, 2007. "Risk and concentration in payment and securities settlement systems," Finance and Economics Discussion Series 2007-62, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  18. Ricardo Lagos & Guillaume Rocheteau, 2006. "Search in asset markets," Staff Report 375, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  19. Charles M. Kahn & William Roberds, 1999. "The design of wholesale payments networks: the importance of incentives," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 30-39. [Downloadable!]
  20. repec:fip:fedreq:y:1991:i:sep/oct:p:13-19:n:v.77no.5 is not listed on IDEAS
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  22. Temzelides, Ted & Williamson, Stephen D., 2001. "Payments Systems Design in Deterministic and Private Information Environments," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 297-326, July. [Downloadable!] (restricted)
  23. Jeffrey M. Lacker, 1997. "Clearing, settlement, and monetary policy," Working Paper 97-01, Federal Reserve Bank of Richmond. [Downloadable!]
    Other versions:
  24. Woodford, Michael, 2000. "Monetary Policy in a World without Money," International Finance, Blackwell Publishing, vol. 3(2), pages 229-60, July. [Downloadable!] (restricted)
    Other versions:
  25. Aleksander Berentsen & Cyril Monnet, 2007. "Monetary Policy in a Channel System," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  26. Freixas, Xavier & Parigi, Bruno, 1998. "Contagion and Efficiency in Gross and Net Interbank Payment Systems," Journal of Financial Intermediation, Elsevier, vol. 7(1), pages 3-31, January. [Downloadable!] (restricted)
  27. Diana Hancock & James A. Wilcox, 1996. "Intraday management of bank reserves: the effects of caps and fees on daylight overdrafts," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 870-913.
  28. Stacy Panigay Coleman, 2002. "The evolution of the Federal Reserve's intraday credit policies," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Feb, pages 67-84. [Downloadable!]
  29. Antoine Martin & James McAndrews, 2007. "Liquidity-saving mechanisms," Staff Reports 282, Federal Reserve Bank of New York. [Downloadable!]
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  31. Guthrie, Graeme & Wright, Julian, 2000. "Open mouth operations," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 489-516, October. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bhattacharya, Joydeep & Haslag, Joseph & Martin, Antoine, 2007. "Why Does Overnight Liquidity Cost More Than Intraday Liquidity?," Staff General Research Papers 12760, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  2. Antoine Martin & Cyril Monnet, 2008. "Monetary policy implementation frameworks: a comparative analysis," Staff Reports 313, Federal Reserve Bank of New York. [Downloadable!]
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This page was last updated on 2008-8-3.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.