IDEAS home Printed from https://ideas.repec.org/p/fip/fedgfe/103338.html

A Tale of Demand and Supply for Central Bank Reserves

Author

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
    as

    Download full text from publisher

    File URL: https://www.federalreserve.gov/econres/feds/files/2026028pap.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://libkey.io/10.17016/FEDS.2026.028?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. 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.).
    3. Hamilton, James D, 1997. "Measuring the Liquidity Effect," American Economic Review, American Economic Association, vol. 87(1), pages 80-97, March.
    4. Gara Afonso & Gabriele La Spada & Thomas M. Mertens & John C. Williams, 2023. "The Optimal Supply of Central Bank Reserves under Uncertainty," Staff Reports 1077, Federal Reserve Bank of New York.
    5. Stefan Gissler & Borghan N. Narajabad, 2017. "The Increased Role of the Federal Home Loan Bank System in Funding Markets, Part 3 : Implications for Financial Stability," FEDS Notes 2017-10-18-3, Board of Governors of the Federal Reserve System (U.S.).
    6. Banegas, Ayelen & Tase, Manjola, 2020. "Reserve balances, the federal funds market and arbitrage in the new regulatory framework," Journal of Banking & Finance, Elsevier, vol. 118(C).
    7. William Poole, 1968. "Commercial Bank Reserve Management In A Stochastic Model: Implications For Monetary Policy," Journal of Finance, American Finance Association, vol. 23(5), pages 769-791, December.
    8. Acharya, Viral & Chauhan, Rahul & Rajan, Raghuram & Steffen, Sascha, 2022. "Liquidity Dependence and the Waxing and Waning of Central Bank Balance Sheets," CEPR Discussion Papers 17622, Centre for Economic Policy Research.
    9. Ricardo Lagos & Gaston Navarro, 2023. "Monetary Policy Operations: Theory, Evidence, and Tools for Quantitative Analysis," NBER Working Papers 31370, National Bureau of Economic Research, Inc.
    10. Kyungmin Kim & Antoine Martin & Ed Nosal, 2020. "Can the U.S. Interbank Market Be Revived?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(7), pages 1645-1689, October.
    11. James A. Clouse & Sebastian Infante & Zeynep Senyuz, 2025. "Market-Based Indicators on the Road to Ample Reserves," FEDS Notes 2025-01-31-1, Board of Governors of the Federal Reserve System (U.S.).
    12. Stefan Gissler & Borghan N. Narajabad, 2017. "The Increased Role of the Federal Home Loan Bank System in Funding Markets, Part 1: Background," FEDS Notes 2017-10-18-1, Board of Governors of the Federal Reserve System (U.S.).
    13. Bech, Morten L. & Klee, Elizabeth, 2011. "The mechanics of a graceful exit: Interest on reserves and segmentation in the federal funds market," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 415-431.
    14. Carpenter, Seth & Demiralp, Selva, 2006. "The Liquidity Effect in the Federal Funds Market: Evidence from Daily Open Market Operations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 901-920, June.
    15. 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.).
    16. Roc Armenter & Benjamin Lester, 2017. "Excess Reserves and Monetary Policy Implementation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 23, pages 212-235, January.
    17. Stefan Gissler & Borghan N. Narajabad, 2017. "The Increased Role of the Federal Home Loan Bank System in Funding Markets, Part 2 : Recent Trends and Potential Drivers," FEDS Notes 2017-10-18-2, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alyssa G. Anderson & Wenxin Du & Bernd Schlusche, 2021. "Arbitrage Capital of Global Banks," Finance and Economics Discussion Series 2021-032, Board of Governors of the Federal Reserve System (U.S.).
    2. Gara Afonso & Roc Armenter & Benjamin Lester, 2019. "A Model of the Federal Funds Market: Yesterday, Today, and Tomorrow," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 33, pages 177-204, July.
    3. Gara Afonso & Domenico Giannone & Gabriele La Spada & John C. Williams, 2022. "Scarce, Abundant, or Ample? A Time-Varying Model of the Reserve Demand Curve," Staff Reports 1019, Federal Reserve Bank of New York.
    4. Klee, Elizabeth, 2010. "Operational outages and aggregate uncertainty in the federal funds market," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2386-2402, October.
    5. Marquez, Jaime & Morse, Ari & Schlusche, Bernd, 2013. "The Federal Reserve’s balance sheet and overnight interest rates: Empirical modeling of exit strategies," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5300-5315.
    6. Gara Afonso & Marco Cipriani & Adam Copeland & Anna Kovner & Gabriele La Spada & Antoine Martin, 2021. "The Market Events of Mid-September 2019," Economic Policy Review, Federal Reserve Bank of New York, vol. 27(2), pages 1-26, August.
    7. Jonathan Chiu & Jens Eisenschmidt & Cyril Monnet, 2020. "Relationships in the Interbank Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 170-191, January.
    8. Alexander Kroeger & John McGowan & Asani Sarkar, 2018. "The pre-crisis monetary policy implementation framework," Economic Policy Review, Federal Reserve Bank of New York, issue 24-2, pages 38-70.
    9. Rod Garratt & Sofia Priazhkina, 2022. "Regulatory Requirements of Banks and Arbitrage in the Post-Crisis Federal Funds Market," Staff Working Papers 22-48, Bank of Canada.
    10. Daniel Moulton & Christopher Severen, 2025. "Harvesting Historical Data with LLMs," Economic Insights, Federal Reserve Bank of Philadelphia, vol. 10(4), pages 1-6, December.
    11. Keister, Todd, 2019. "The interplay between liquidity regulation, monetary policy implementation and financial stability," Global Finance Journal, Elsevier, vol. 39(C), pages 30-38.
    12. Hanes, Christopher, 2019. "Explaining the appearance of open-mouth operations in the 1990s U.S," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 682-701.
    13. Garth Baughman & Francesca Carapella, 2020. "Voluntary Reserve Targets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(2-3), pages 583-612, March.
    14. Ben S. Bernanke, 2018. "The Real Effects of Disrupted Credit: Evidence from the Global Financial Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 49(2 (Fall)), pages 251-342.
    15. Adrien d’Avernas & Baiyang Han & Quentin Vandeweyer, 2025. "Intraday Liquidity and Money Market Dislocations," Management Science, INFORMS, vol. 71(12), pages 10740-10752, December.
    16. John Kandrac & Bernd Schlusche, 2017. "Quantitative Easing and Bank Risk Taking: Evidence from Lending," Finance and Economics Discussion Series 2017-125, Board of Governors of the Federal Reserve System (U.S.).
    17. William Arrata & Benoit Nguyen & Imene Rahmouni-Rousseau & Miklos Vari, 2018. "The Scarcity Effect of Quantitative Easing on Repo Rates: Evidence from the Euro Area," IMF Working Papers 2018/258, International Monetary Fund.
    18. Judson, Ruth A. & Klee, Elizabeth, 2011. "Big bank, small bank: Monetary policy implementation and banks' reserve management strategies," Journal of Economics and Business, Elsevier, vol. 63(4), pages 306-328, July.
    19. Huberto M. Ennis & Elizabeth Klee, 2025. "The Fed's Discount Window in “Normal” Times," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 66(4), pages 1459-1485, October.
    20. Kevin Curran & Emerson Krasusky, 2025. "Regional Spotlight: Introducing the Price and Inflation Expectations Survey," Economic Insights, Federal Reserve Bank of Philadelphia, vol. 10(4), pages 7-13, December.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:103338. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ryan Wolfslayer ; Keisha Fournillier (email available below). General contact details of provider: https://edirc.repec.org/data/frbgvus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.