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The payment system benefits of high reserve balances

Author

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  • Mcandrews, James
  • Kroeger, Alexander

Abstract

The policy measures since the financial crisis have greatly expanded the size of the Federal Reserve’s balance sheet, and have thus also raised the level of aggregate bank reserves. Over the same time period there has been a significant shift in the timing of payments over the Federal Reserve’s Fedwire Funds service toward earlier settlement. This paper documents this timing change and presents regression results that suggest that the increase in overall reserve balances explains the vast majority of this development. This paper also discusses the benefits of high aggregate reserve balances for the robustness of the payment system and its potential implications for policy going forward.

Suggested Citation

  • Mcandrews, James & Kroeger, Alexander, 2016. "The payment system benefits of high reserve balances," Journal of Payments Strategy & Systems, Henry Stewart Publications, vol. 10(1), pages 72-83, March.
    • Handle: RePEc:aza:jpss00:y:2016:v:10:i:1:p:72-83
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    Cited by:

    1. Eisenbach, Thomas M. & Kovner, Anna & Lee, Michael Junho, 2022. "Cyber risk and the U.S. financial system: A pre-mortem analysis," Journal of Financial Economics, Elsevier, vol. 145(3), pages 802-826.
    2. Nellen, Thomas, 2019. "Intraday liquidity facilities, late settlement fee and coordination," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 124-131.
    3. Gara Afonso & Darrell Duffie & Lorenzo Rigon & Hyun Song Shin, 2022. "How Abundant Are Reserves? Evidence from the Wholesale Payment System," Staff Reports 1040, Federal Reserve Bank of New York.

    More about this item

    Keywords

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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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