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The Fed’s Balance Sheet Runoff: The Role of Levered NBFIs and Households

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Abstract

In a Liberty Street Economics post that appeared yesterday, we described the mechanics of the Federal Reserve’s balance sheet “runoff” when newly issued Treasury securities are purchased by banks and money market funds (MMFs). The same mechanics would largely hold true when mortgage-backed securities (MBS) are purchased by banks. In this post, we show what happens when newly issued Treasury securities are purchased by levered nonbank financial institutions (NBFIs)—such as hedge funds or nonbank dealers—and by households.

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  • Marco Cipriani & James A. Clouse & Lorie Logan & Antoine Martin & Will Riordan, 2022. "The Fed’s Balance Sheet Runoff: The Role of Levered NBFIs and Households," Liberty Street Economics 20220412, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:93945
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    File URL: https://libertystreeteconomics.newyorkfed.org/2022/04/the-feds-balance-sheet-runoff-the-role-of-levered-nbfis-and-households/
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    Keywords

    balance sheet runoff; Federal Reserve; money market funds (MMFs); nonbank financial institutions (NBFIs); treasuries;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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