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The Dueling Intraday Demands on Reserves

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Abstract

A central use of reserves held at Federal Reserve Banks (FRBs) is for the settlement of interbank obligations. These obligations are substantial—the average daily total reserves used on two main settlement systems, Fedwire Funds and Fedwire Securities, exceeds $6.5 trillion. The total amount of reserves needed to efficiently settle these obligations is an active area of debate, especially as the Federal Reserve’s current quantitative tightening (QT) policy seeks to drain reserves from the financial system. To better understand the use of reserves, in this post we examine the intraday flows of reserves over Fedwire Funds and Fedwire Securities and show that the mechanics of each settlement system result in starkly different intraday demands on reserves and differing sensitivities of those intraday demands to the total amount of reserves in the financial system.

Suggested Citation

  • Adam Copeland & Sarah Wang, 2024. "The Dueling Intraday Demands on Reserves," Liberty Street Economics 20241021, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:98993
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    Keywords

    reserve balances; intraday; quantitative tightening (QT);
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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