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Retail sweep programs and bank reserves, 1994--1999

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  • Richard G. Anderson
  • Robert H. Rasche

Abstract

Since January 1994, the Federal Reserve Board has permitted depository institutions in the United States to implement so-called retail sweep programs. The essence of these programs is computer software that dynamically reclassifies customer deposits between transaction accounts, which are subject to statutory reserve requirement ratios as high as 10 percent, and money market deposit accounts, which have a zero ratio. Through the use of such software, hundreds of banks have sharply reduced the amount of their required reserves. In some cases, this new level of required reserves is less than the amount that the bank requires for its ordinary, day-to-day business. In the terminology introduced by Anderson and Rasche (1996b), such deposit-sweeping activity has allowed these banks to become "economically nonbound," and has reduced to zero the economic burden ("tax") due to statutory reserve requirements. In this analysis, we examine a large panel of U.S. banks and develop quantitative estimates of the impact of sweep software programs on the demand for bank reserves.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2000-023.

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Date of creation: 2000
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Publication status: Published in Federal Reserve Bank of St. Louis Review, January/February 2001, 83(1), pp. 51-72
Handle: RePEc:fip:fedlwp:2000-023

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Keywords: Money supply ; Bank reserves ; Monetary policy - United States;

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  1. Furfine, Craig H., 2000. "Interbank payments and the daily federal funds rate," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 535-553, October.
  2. William R. Emmons, 1997. "Recent developments in wholesale payments systems," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 23-43.
  3. Paul Bennett & Spence Hilton, 1997. "Falling reserve balances and the federal funds rate," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 3(May).
  4. Bennett T. McCallum & Monica Hargraves, 1994. "A Monetary Impulse Measure for Medium-Term Policy Analysis," IMF Working Papers 94/146, International Monetary Fund.
  5. Kohn, Meir, 2003. "Financial Institutions and Markets," OUP Catalogue, Oxford University Press, edition 2, number 9780195134728, Octomber.
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