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Intraday management of bank reserves: the effects of caps and fees on daylight overdrafts

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The Federal Reserve System imposes caps and charges fees on the negative intraday balances in banks' reserve accounts. i.e., on daylight overdrafts. Our empirical results suggest that caps alone did little to reduce daylight overdrafts in the aggregate. By contrast, the 1994 imposition of fees reduced the average daily maximum overdraft on the Fedwire system by about $93 billion and the average aggregate overdraft at any time during the day by about $43 billion. We also found statistical evidence that higher beginning-of-day reserve balances, lower aggregate dollar values of securities-related transfers over Fedwire, and lower shares of banks' assets funded with federal funds and repurchase agreements reduced daylight overdrafts. Copyright 1996 by Ohio State University Press.
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  • Diana Hancock & James A. Wilcox, 1996. "Intraday management of bank reserves: the effects of caps and fees on daylight overdrafts," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 870-913.
    • Handle: RePEc:fip:fedgpr:y:1996:p:870-913
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    Cited by:

    1. Akram, Q. Farooq & Findreng, Jon H., 2021. "Norwegian interbank market's response to changes in liquidity policy," Journal of Banking & Finance, Elsevier, vol. 125(C).
    2. Selgin, George, 2004. "Wholesale payments: questioning the market-failure hypothesis," International Review of Law and Economics, Elsevier, vol. 24(3), pages 333-350, September.
    3. Huberto M. Ennis & John A. Weinberg, 2007. "Interest on reserves and daylight credit," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 93(Spr), pages 111-142.
    4. Hancock, Diana & Humphrey, David B., 1997. "Payment transactions, instruments, and systems: A survey," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1573-1624, December.
    5. Hajime Tomura, 2021. "Nominal contracts and the payment system," The Japanese Economic Review, Springer, vol. 72(2), pages 185-216, April.
    6. Kahn, Charles M. & Roberds, William, 2001. "Real-time gross settlement and the costs of immediacy," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 299-319, April.
    7. Rochet, Jean-Charles, 1999. "Solvency regulations and the management of banking risks," European Economic Review, Elsevier, vol. 43(4-6), pages 981-990, April.
    8. Kotomin, Vladimir & Winters, Drew B., 2007. "The impact of the return to lagged reserve requirements on the federal funds market," Journal of Economics and Business, Elsevier, vol. 59(2), pages 111-129.
    9. Matei, Marius, 2010. "Risk analysis in the evaluation of the international investment opportunities. Advances in modelling and forecasting volatility for risk assessment purposes," Working Papers of Institute for Economic Forecasting 100201, Institute for Economic Forecasting.
    10. Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
    11. Richard G. Anderson & Robert H. Rasche, 1996. "Measuring the adjusted monetary base in an era of financial change," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 3-37.
    12. Humphrey, David B. & Setsuya, Sato & Masayoshi, Tsurumi & Vesala, Jukka M., 1996. "The evolution of payments in Europe, Japan, and the U.S. : lessons for emerging market economies," Policy Research Working Paper Series 1676, The World Bank.
    13. William R. Emmons, 1997. "Recent developments in wholesale payments systems," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 23-43.
    14. Chakravorti, Sujit, 2000. "Analysis of systemic risk in multilateral net settlement systems," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(1), pages 9-30, January.
    15. Tore Nilssen, 2011. "Risk externalities in a payments oligopoly," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 10(3), pages 211-234, December.
    16. John R. Walter, 1998. "Can a safety net subsidy be contained?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 1-20.

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