Reserves Were Not So Ample After All - FEDERAL RESERVE BANK of NEW YORK

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Staff Reports

Reserves Were Not So Ample After All

Number 974
July 2021 Revised July 2024

JEL classification: G14, D47, D82

Authors: Adam Copeland, Darrell Duffie, and Yilin (David) Yang

We show that the likelihood of a liquidity crunch in wholesale US dollar funding markets is highly dependent on levels of reserve balances at the financial institutions that are the most active intermediaries of these markets. Heightened risk of an imminent liquidity crunch is signaled by significant delays in intra-day payments to these large financial institutions over the prior two weeks. Our study contributes to the broader dialogue surrounding the Federal Reserve's ongoing quantitative tightening (QT).

Available only in PDF

Author Disclosure Statement(s)

Adam Copeland
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Darrell Duffie
I declare that I have no relevant or material financial interests that relate to the research described in this paper. To my knowledge, prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Yilin (David) Yang
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

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