Reserves Were Not So Ample After All
The Federal Reserve's "balance-sheet normalization," which reduced aggregate reserves between 2017 and September 2019, increased repo rate distortions, the severity of rate spikes, and intraday payment timing stresses, culminating with a significant disruption in Treasury repo markets in mid-September 2019. We show that repo rates rose above efficient-market levels when the total reserve balances held at the Federal Reserve by the largest repo-active bank holding companies declined and that repo rate spikes are strongly associated with delayed intraday payments of reserves to these large bank holding companies. Intraday payment timing stresses are magnified by early-morning settlement of Treasury security issuances. Substantially higher aggregate levels of reserves than existed in the period leading up to September 2019 would likely have eliminated most or all of these payment timing stresses and repo rate spikes.
-
-
Copy CitationAdam Copeland, Darrell Duffie, and Yilin Yang, "Reserves Were Not So Ample After All," NBER Working Paper 29090 (2021), https://doi.org/10.3386/w29090.Download Citation
-
Published Versions
Adam Copeland & Darrell Duffie & Yilin (David) Yang, 2025. "Reserves Were Not So Ample After All," The Quarterly Journal of Economics, vol 140(1), pages 239-281.
Related
Programs
Working Groups
More from the NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals—the NBER Reporter, the NBER Digest, the Bulletin on Health, the Bulletin on the Economics of Alzheimer's, and the Bulletin on Entrepreneurship—as well as research spotlights, lectures, and panel videos.
