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Retail sweep programs and bank reserves, 1994-1999

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Author Info
Richard G. Anderson
Robert H. Rasche

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Abstract

Since January 1994, the Federal Reserve Board has permitted depository institutions in the United States to implement so-called “retail sweep programs.” The essence of these programs is computer software that dynamically reclassifies customer deposits from transaction accounts, which are subject to statutory reserve-requirement ratios as high as 10 percent, to money market deposit accounts, which have a zero ratio. Through the use of such software, hundreds of banks have sharply reduced the amount of their required reserves. In many cases, this new lower requirement places no constraint on the bank because it is less than the amount of reserves (vault cash and deposits at the Federal Reserve) that the bank requires for its ordinary day-to-day business. In the terminology introduced by Anderson and Rasche (1996b), such deposit-sweeping activity has allowed these banks to become “economically nonbound” and has reduced to zero the economic burden (“tax”) due to statutory reserve requirements. In this analysis, we examine a large panel of U.S. banks and develop quantitative estimates of the impact of sweep software programs on the demand for bank reserves.

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Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2001)
Issue (Month): Jan ()
Pages: 51-72
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Handle: RePEc:fip:fedlrv:y:2001:i:jan:p:51-72:n:v.83no.1

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Keywords: Money supply ; Bank reserves;

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References listed on IDEAS
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.:
  1. Furfine, Craig H., 2000. "Interbank payments and the daily federal funds rate," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 535-553, October. [Downloadable!] (restricted)
  2. Paul Bennett & Spence Hilton, 1997. "Falling reserve balances and the federal funds rate," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue May. [Downloadable!]
  3. William R. Emmons, 1997. "Recent developments in wholesale payments systems," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 23-43. [Downloadable!]
  4. Bennett T. McCallum & Monica Hargraves, 1994. "A Monetary Impulse Measure for Medium-Term Policy Analysis," IMF Working Papers 94/146, International Monetary Fund.
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(explanations, 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.)

  1. Selva Demiralp & Oscar Jorda, . "The Announcement Effect: Evidence from Open Market Desk Data," Department of Economics 01-04, California Davis - Department of Economics. [Downloadable!]
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  2. Selva Demiralp, 2001. "Monetary policy in a changing world: rising role of expectations and the anticipation effect," Finance and Economics Discussion Series 2001-55, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  3. Selva Demiralp & Oscar Jorda, . "The Pavlovian Response of Term Rates to Fed Announcements," Department of Economics 99-06, California Davis - Department of Economics. [Downloadable!]
    Other versions:
  4. Daniel L. Thornton, 2008. "Monetary policy: why money matters and interest rates don't," Working Papers 2008-011, Federal Reserve Bank of St. Louis. [Downloadable!]
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