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

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  • Hancock, Diana
  • Wilcox, James A
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    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.

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    Bibliographic Info

    Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

    Volume (Year): 28 (1996)
    Issue (Month): 4 (November)
    Pages: 870-908

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    Handle: RePEc:mcb:jmoncb:v:28:y:1996:i:4:p:870-908

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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    Cited by:
    1. Kotomin, Vladimir & Winters, Drew B., 2007. "The impact of the return to lagged reserve requirements on the federal funds market," Journal of Economics and Business, Elsevier, vol. 59(2), pages 111-129.
    2. Charles M. Kahn & William Roberds, 1999. "Real-time gross settlement and the costs of immediacy," Working Paper 98-21, Federal Reserve Bank of Atlanta.
    3. Nilssen,T., 2000. "Risk externalities in a payments oligopoly," Memorandum 10/2000, Oslo University, Department of Economics.
    4. William R. Emmons, 1997. "Recent developments in wholesale payments systems," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 23-43.
    5. Rochet, Jean-Charles, 1999. "Solvency regulations and the management of banking risks," European Economic Review, Elsevier, vol. 43(4-6), pages 981-990, April.
    6. Richard G. Anderson & Robert H. Rasche, 1996. "Measuring the adjusted monetary base in an era of financial change," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 3-37.
    7. John R. Walter, 1998. "Can a safety net subsidy be contained?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 1-20.
    8. Huberto M. Ennis & John A. Weinberg, 2007. "Interest on reserves and daylight credit," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 111-142.
    9. Selgin, George, 2004. "Wholesale payments: questioning the market-failure hypothesis," International Review of Law and Economics, Elsevier, vol. 24(3), pages 333-350, September.

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