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A Tale of Demand and Supply for Central Bank Reserves

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Abstract

In an ample-reserves framework, administered rates anchor money markets but suppress information from unsecured interbank trading. We recover that information by isolating the small interbank segment of the federal funds market. Using high-frequency bank-level data, we employ deposit shocks as an instrument for bank borrowing demand. Our analysis reveals that non-bank lenders, such as Federal Home Loan Banks, supply funds elastically, whereas bank lenders exhibit price inelasticity, which intensifies as their reserve balances decline, particularly for bankers’ banks. This interbank segment highlights distributional frictions in the federal funds market that emerge well before aggregate reserves become scarce and provides new evidence on monetary policy transmission in an ample-reserves regime.

Suggested Citation

  • Sriya Anbil & Sebastian Infante & Zeynep Senyuz, 2026. "A Tale of Demand and Supply for Central Bank Reserves," Finance and Economics Discussion Series 2026-028, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:103338
    DOI: 10.17016/FEDS.2026.028
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    References listed on IDEAS

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    1. Sriya Anbil & Alyssa G. Anderson & Benjamin Eyal, 2026. "Bankers’ Banks and their Role in the Federal Funds Market," FEDS Notes 2026-01-30-1, Board of Governors of the Federal Reserve System (U.S.).
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    7. Alyssa G. Anderson & Dave Na, 2024. "The Recent Evolution of the Federal Funds Market and its Dynamics during Reductions of the Federal Reserve’s Balance Sheet," FEDS Notes 2024-07-11, Board of Governors of the Federal Reserve System (U.S.).
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