A specialized inventory problem in banks: optimizing retail sweeps
Deposits held at Federal Reserve Banks are an essential input to the business activity of most depository institutions in the United States. Managing these deposits is an important and complex inventory problem, for two reasons. First, Federal Reserve regulations require that depository institutions hold certain amounts of such deposits at the Federal Reserve Banks to satisfy statutory reserve requirements against customers* transaction accounts (demand deposits and other checkable deposits). Second, some inventory of such deposits is essential for banks to operate one of their core lines of business: furnishing payment services to households and firms. including wire transfers, ACH payments, and check clearing settlement. Because the Federal Reserve does not pay interest on such deposits used to satisfy statutory reserve requirements, banks seek to minimize their inventory of such deposits. In 1994, the banking industry introduced a new inventory management tool for such deposits, the retail deposit sweep program, which avoids the statutory requirement by reclassifying transaction deposits as savings deposits. In this analysis, we examine two algorithms for operating such sweeps programs within the limits of Federal Reserve regulations.
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Postal: P.O. Box 442, St. Louis, MO 63166|
Web page: http://www.stlouisfed.org/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jeffrey M. Wrase, 1998. "Is the Fed being swept out of (monetary) control?," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-12.
- Paul Bennett & R. 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).
- Clouse, James A. & Dow, James Jr., 2002. "A computational model of banks' optimal reserve management policy," Journal of Economic Dynamics and Control, Elsevier, vol. 26(11), pages 1787-1814, September.
- Furfine, Craig H., 2000. "Interbank payments and the daily federal funds rate," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 535-553, October.
When requesting a correction, please mention this item's handle: RePEc:fip:fedlwp:2005-023. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao)
If references are entirely missing, you can add them using this form.