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Observations on Implementing Monetary Policy in
an Ample-Reserves Regime
Remarks before the Money Marketeers of New York University
New York City

Lorie K. Logan
April 17, 2019
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: Stylized Monetary Policy Implementation
Frameworks
Pre-Crisis Framework

Ample-Reserves Regime Framework

Interest
Rate

Marginal
Lending Rate
(primary
credit rate)

Interest
Rate

Marginal
Lending Rate
(primary
credit rate)

Target
Rate
IOER
ON RRP

0

Supply of
Reserves

Reserve
Balances

0

Reserve
Balances

2

Figure 2: Select Overnight Money Market Rates
Percent
2.75
2.50

Target Range
Secured Overnight Financing Rate (SOFR)

Interest on Excess Reserves (IOER)
Effective Fed Funds Rate (EFFR)

Implementation
Of Money
Market Reform

1st IOER
Technical
Adjustment

2nd IOER
Technical
Adjustment

2.25
2.00
1.75
1.50
1.25
1.00
0.75
0.50
0.25
0.00
Dec-15

Apr-16

Aug-16

Dec-16

Apr-17

Aug-17

Dec-17

Apr-18

Note: Data excludes day before quarter-ends, quarter-ends, day after quarter-ends, and month-ends.
Source: Federal Reserve Bank of New York, Federal Reserve Board of Governors

Aug-18

Dec-18

Apr-19

3

Figure 3: Assets and Liabilities of the Federal
Reserve
Assets of the Federal Reserve
$ Billions
5,000

Treasuries

Agency MBS

Other Assets

Agency Debt

Liabilities of the Federal Reserve
$ Billions
5,000

4,500

4,500

4,000

4,000

3,500

3,500

3,000

3,000

2,500

2,500

2,000

2,000

1,500

1,500

1,000

1,000

500

500

0
2007

2009

2011

2013

2015

2017

2019

0
2007

Federal Reserve Notes
TGA and SFA
Reserves

2009

2011

2013

RRPs and TDF
Other Liab. and Capital

2015

2017

2019

Note: TGA is Treasury General Account, SFA is Supplementary Financing Account, RRPs are Reverse Repo Agreements, TDF is Term Deposit
Facility, Federal Reserve Notes are currency in circulation.
Source: Board of Governors of the Federal Reserve System H.4.1 Statistical Release

4

Figure 4: Drivers of Banks’ Lowest Comfortable
Level of Reserves (LCLoR)
Percent of Respondents who Responded Important or Very Important
Domestic

Foreign

1)

Meeting routine intraday payment flows

57%

65%

2)

Meeting potential deposit outflows

73%

35%

3)

Satisfying internal liquidity stress metrics

63%

75%

4)

Satisfying the bank's reserve requirements

50%

43%

5)

Seeking to earn IOER rate

10%

24%

6)

Managing liquidity portfolio

30%

48%

Note: The exact question respondents were asked was “Please rate the importance to your bank of the following considerations in determining
the amount you indicated in question 1 on a scale of 1 (not important), 2 (somewhat important), 3 (important), or 4 (very important), or, if the
factor is not applicable to your bank (for example, your bank is not subject to the regulatory requirement or does not engage in the described
activity), please select ‘N/A.’” Factors included: a) Meeting routine intraday payment flows, b) Meeting potential deposit outflows, c) Satisfying
internal liquidity stress metrics, d) Satisfying the bank’s reserve requirements, e) Seeking to earn the IOER rate instead of the return on other
high-quality liquid assets, f) Managing liquidity portfolio based on monetization assumptions for high-quality liquid assets.
Source: September 2018 Senior Financial Officer Survey (SFOS)

5

Figure 5: Lowest Comfortable Level of Reserves
(LCLoR) By Bank Type
Average Reserve Balances in August 2018

Reported LCLoR

Extrapolated Demand for Reserves

$ Billions
900
800
700
600
500
400

300
200
100
0
Domestic

Foreign

Rest of the Banking System

Note: Extrapolated demand for reserves for the rest of the banking system based on various estimation methodologies that use the 2018 Senior
Financial Officer Survey responses suggest total demand is between $822 billion and $896 billion. See: “Estimating System Demand for
Reserve Balances Using the 2018 Senior Financial Officer Survey”, FEDS Notes published on April 9, 2019
Source: Federal Reserve Bank of New York; September 2018 Senior Financial Officer Survey (SFOS); Staff Calculations

6

Figure 6: Overnight Bank Funding Markets Trading
Volumes at Rates Relative to IOER

Thousands

$ Billions
160

> IOER+2
IOER
IOER-3

IOER+2
IOER-1
< IOER-3

IOER+1
IOER-2
Median volume

140
120

100
80
60

40
20
0
Jan-19

Feb-19

Mar-19

Note: Overnight bank funding markets include the federal funds and Eurodollar markets.
Source: FR 2420 Report of Selected Money Market Rates

Apr-19

7

Figure 7: Daily Changes in Reserve Balances versus
Daily Changes in EFFR – IOER Spread
2018

2019

Daily Changes in EFFR-IOER Spread
(BPS)

2

1

0

-1

-2
-100

-80

-60

-40

-20

0

20

40

60

80

100

Daily Changes in Reserve Balances
($ Billions)
Note: Excludes first and last business day of the month. Reserves exclude GSE balances.
Source: Federal Reserve Bank of New York, Board of Governors of the Federal Reserve System H.4.1 Statistical Release

8

Figure 8: Weekly Changes in Reserves versus Weekly
Changes in Treasury General Account
2018

2019
120

Weekly Changes in TGA ($ Billions)

80

40

0

-40

-80

-120
-120

-80

-40

0

40

80

120

Weekly Changes in Reserves ($ Billions)
Note: Data shows changes in Wednesday to Wednesday levels.
Source: Board of Governors of the Federal Reserve System H.4.1 Statistical Release

9

Figure 9: Variability of Non-Reserve Liabilities and
Capital, Distribution of Changes in Weekly Levels
$ Billions

Interquartile Range

Median

400
300
200
100
0
-100
-200
-300
-400
-500
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Note: Box plots indicate median, interquartile range, with maximum and minimum observations as whiskers. Data shows the distribution of changes
from Wednesday to Wednesday for all non-reserve liabilities (currency, Treasury accounts, foreign repo pool, other deposits, overnight and term
reverse repos conducted with private counterparties, and term deposits held by depository institutions).
Source: Board of Governors of the Federal Reserve System H.4.1 Statistical Release

10