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A New Reserves Regime? COVID-19 and the Federal Reserve Balance Sheet

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Abstract

Aggregate reserves declined from nearly $3 trillion in August 2014 to $1.4 trillion in mid-September 2019, as the Federal Reserve normalized its balance sheet. This decline came to a halt in September 2019 when the Federal Reserve responded to turmoil in short-term money markets, with reserves fluctuating around $1.6 trillion in the early months of 2020. Then, in response to the COVID-19 pandemic, the Federal Reserve dramatically expanded its balance sheet, both directly, through outright purchases and repurchase agreements, and indirectly, as a consequence of the facilities to support market functioning and the flow of credit to the real economy. In this post, we characterize the increase in reserves between March and June 2020, describing changes to the distribution and concentration of reserves.

Suggested Citation

  • Gara Afonso & Marco Cipriani & Gabriele La Spada & Will Riordan, 2020. "A New Reserves Regime? COVID-19 and the Federal Reserve Balance Sheet," Liberty Street Economics 20200707a, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:88313
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    More about this item

    Keywords

    reserves; COVID-19; branches; foreign banking organizations (FBOs); global systemically important banks (GSIBs);
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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