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With Abundant Reserves, Do Banks Adjust Reserve Balances to Accommodate Payment Flows?

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Abstract

As a result of the global financial crisis (GFC), the Federal Reserve switched from a regime of scarce reserves to one of abundant reserves. In this post, we explore how banks’ day-to-day management of reserve balances with respect to payment flows changed with this regime switch. We find that bank behavior did not change on average; under both regimes, banks increased their opening balances when they expected higher outgoing payments and, similarly, decreased these balances with expected higher incoming payments. There are substantial differences across banks, however. At the introduction of the abundant-reserves regime, small domestic banks no longer adjusted balances alongside changes in outgoing payments.

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  • Catherine Huang & Adam Copeland & Kailey Kraft, 2022. "With Abundant Reserves, Do Banks Adjust Reserve Balances to Accommodate Payment Flows?," Liberty Street Economics 20221012, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:94906
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    File URL: https://libertystreeteconomics.newyorkfed.org/2022/10/with-abundant-reserves-do-banks-adjust-reserve-balances-to-accommodate-payment-flows/
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    More about this item

    Keywords

    quantitative easing (QE); liquidity; reserves; payments; Federal Reserve; banks;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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