Once reserves reached a level at which banks were not willing to absorb the regulatory costs on their balance sheets, they started turning deposits away. Yet for many big banks, those deposits are unwanted anyway.Īs the Fed's balance sheet increased with quantitative easing during the pandemic, so did bank reserves deposited at the central bank. Treasury will increase bill issuance for fiscal year 2023, which starts in October, could help ease the surfeit of inflows into the reverse repo window, analysts said.Ībate estimated that bank reserves will fall to $2.3 trillion this year, perilously near what he termed banks' "minimally ample level" of $2 trillion, as the exit of deposits starts to weigh on their balance sheets. We expect money funds to put this cash in the RRP," wrote Joseph Abate, managing director at Barclays, in a research note.Įxpectations that the U.S. But bank reserves are set to fall much faster as cash shifts out of bank deposits to government-only money funds. "The Fed's QT will shrink its balance sheet quickly. The shift of deposits to money funds has been a slow process. Government money market fund assets have been fairly steady as of July 27, at $4.025 trillion, up about 0.1% from a week earlier, data from the Investment Company Institute showed. To be sure, there are other factors that have contributed to the decline in bank reserves, such as asset re-allocations and loan demand, analysts said. In the Fed's previous quantitative tightening (QT), $1.3 trillion in liquidity was withdrawn in five years. From a peak of nearly $4.3 trillion in December last year, bank reserves have declined about 23%. Join today and take advantage of all the financial benefits available for our friends and neighbors here in the Midlands.For now, bank reserves are still considered abundant at $3.3 trillion, but the decline has been rapid, some market participants said.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |