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A Return to Operating with Abundant Reserves Remarks before the Money Marketeers of New York University Lorie Logan December 1, 2020 The views presented here are those of the author and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System Figure 1: Assets of the Federal Reserve $ Billion 8,000 Other Assets** 7,000 Repurchase Agreements, Swaps, Credit, and Liquidity Facilities* Agency Debt 6,000 Agency MBS Treasuries 5,000 4,000 3,000 2,000 1,000 0 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 * Includes repurchase agreements, central bank liquidity swaps, primary and secondary credit, Primary Dealer Credit Facility, Money Market Mutual Fund Liquidity Facility, Paycheck Protection Program Liquidity Facility, and net portfolio holdings of the Commercial Paper Funding Facility, Corporate Credit Facilities, Main Street Lending Program, Municipal Liquidity Facility and Term Asset-backed Securities Loan Facility ** Includes gold certificates, special drawing rights, coin; foreign currency denominated assets, bank premises, unamortized premiums and discounts on securities held outright, accrued interest, net portfolio holdings of the Maiden Lane LLC, and other accounts receivables. Source: Federal Reserve Board H.4.1 Statistical Release 2 Figure 2: Liabilities of the Federal Reserve $ Billion 8,000 Reserves 7,000 FR Notes (Currency) Treasury General Account (TGA) 6,000 Other Liabilities and Capital Overnight Reverse Repurchase Agreeements* 5,000 4,000 3,000 2,000 1,000 0 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 * Includes small volumes of term reverse repurchase agreements exercises in 2015 Source: Federal Reserve Board H.4.1 Statistical Release Jan-17 Jan-19 3 Figure 3: Stylized Bank Demand for Reserves Pre-Crisis Framework Ample-Reserves Regime Framework* * The ample-reserves regime framework reflects a much broader span of potential reserve levels and is not drawn to scale relative to the precrisis graphic. 4 Figure 4: Fed Funds – IOER Spread Bps 25 $ Billion 3,500 Reserves (RHS) 20 Fed funds-IOER* (LHS) 3,000 15 2,500 10 5 2,000 0 1,500 -5 -10 1,000 -15 500 -20 -25 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 * Effective federal funds rate, excludes month- and quarter-ends Source: Bloomberg, Federal Reserve Board, FR2900 Jan-17 Jan-18 Jan-19 Jan-20 0 5 Figure 5: Fed Funds – IOER Spread vs. Total Reserves Fed Funds – IOER* (Percent) 2010-2013 2014-2015 2016-2019 Q1 2020 2020 ex Q1 0.20 0.15 0.10 0.05 0.00 -0.05 -0.10 -0.15 -0.20 -0.25 0 500 1,000 1,500 2,000 Total Reserves ($ Billion) * Volume-weighted average federal funds rate, excludes month- and quarter-ends Source: FRED, FRBNY, Federal Reserve Board, FR2420, FR2900 2,500 3,000 3,500 6 Figure 6: Reserves by Bank Type $ Trillion 4.0 Branches of FBOs US GSIBs Other Domestic banks Other 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Jan-07 Jan-09 Jan-11 Source: Federal Reserve Board, FR2900 Jan-13 Jan-15 Jan-17 Jan-19 7 Figure 7: Cumulative Net Bill Issuance $ Billion 3,800 2017 3,300 2018 2019 2020 2,800 2,300 1,800 1,300 800 300 -200 1 Source: FRBNY 31 61 91 121 151 Business Days in the Year 181 211 241 8 Figure 8: Senior Financial Officer Survey - Banks’ Expectations for their Reserve Balances in Q4 Percent of Respondents 60 Domestic 50 FBO “By how much do you expect your institution’s average endof-day reserve level in December 2020 to change relative to August 2020?” 40 30 20 10 0 V. An increase of VI. An increase of IV. Stable I. A decrease of II. A decrease of III. A decrease of greater than 50% between 26% and between 6% and reserves (plus or between 6% and between 26% and 50% 25% minus 5%) 25% 50% Source: Senior Financial Officer Survey Fall 2020 9 Figure 9: Policy Target Range and Administered Rates Bps 350 Technical adjustments to administered rates Target Range ON RRP 300 IOER EFFR Primary Credit Rate 250 200 150 100 50 0 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 * The Desk also conducts daily, large-scale overnight repo operations, currently at a fixed rate of five basis points above IOER Source: FRED, FRBNY 10