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How closely do banks manage vault cash?

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  • Donald S. Allen

Abstract

This article examines daily vault cash balances in the Eighth Federal Reserve District to see if banks have been optimizing their vault cash levels. Recent reductions in reserve requirements have not been accompanied by significant reductions in vault cash. This situation suggests that banks may be managing vault cash reserves primarily as precautionary balances to satisfy daily fluctuations in deposits and withdrawals, rather then part of total reserve management. In 1997, some larger banks instituted formal management of vault currency. If this practice spreads, it will have implications for monetary policy and cash operations.

Suggested Citation

  • Donald S. Allen, 1998. "How closely do banks manage vault cash?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 43-54.
    • Handle: RePEc:fip:fedlrv:y:1998:i:jul:p:43-54:n:v.80no.4
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    References listed on IDEAS

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    1. R. Alton Gilbert & Jean M. Lovati, 1978. "Bank reserve requirements and their enforcement: a comparison across streets," Review, Federal Reserve Bank of St. Louis, vol. 60(Mar), pages 22-31.
    2. Richard G. Anderson & Robert H. Rasche, 1996. "A revised measure of the St. Louis adjusted monetary base," Review, Federal Reserve Bank of St. Louis, vol. 78(Mar), pages 3-13.
    3. William Poole, 1968. "Commercial Bank Reserve Management In A Stochastic Model: Implications For Monetary Policy," Journal of Finance, American Finance Association, vol. 23(5), pages 769-791, December.
    4. Richard G. Anderson & Robert H. Rasche, 1996. "Defining the adjusted monetary base in an era of financial change," Working Papers 1996-014, Federal Reserve Bank of St. Louis.
    5. 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.
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    Cited by:

    1. Bartzsch, Nikolaus & Rösl, Gerhard & Seitz, Franz, 2013. "Currency movements within and outside a currency union: The case of Germany and the euro area," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(4), pages 393-401.
    2. Paul Bennett & Stavros Peristiani, 2002. "Are U.S. reserve requirements still binding?," Economic Policy Review, Federal Reserve Bank of New York, vol. 8(May), pages 53-68.
    3. Fátima Teresa Sol Murta & Ana Margarida Garcia, 2010. "The Demand for Excess Reserves in the Euro Area and the Impact of the Current Credit Crisis," GEMF Working Papers 2010-01, GEMF, Faculty of Economics, University of Coimbra.

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    Keywords

    Bank reserves; Cash management;

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