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The Supply of Money-Like Assets Remarks for American Economic Association Panel Session: “The Balance Sheets of Central Banks and the Shortage of Safe Assets” Philadelphia, PA Simon Potter January 6, 2018 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: Federal Reserve Assets $ Billions 3,000 Treasuries Agencies MBS Repos Discount Window TAF Swaps PDCF AMLF CPFF TALF Other 2,500 2,000 1,500 1,000 500 0 Jan 2008 Jul 2008 Jan 2009 Jul 2009 Jan 2010 Source: Federal Reserve Board data, accessed from the data file accompanying the Financial Stability Oversight Council’s 2011 Annual Report. 1 Figure 2: Money Market Fund Assets by Fund Type $ Billions 3,000 Government Funds (left scale) Government Share of Total (right scale) Prime Funds (left scale) Percent 100 90 2,500 80 70 2,000 60 1,500 50 40 1,000 30 20 500 10 0 Jan 2015 0 Jul 2015 Jan 2016 Jul 2016 Jan 2017 Jul 2017 Source: Securities and Exchange Commission. 2 Figure 3: Flows between Fund Types within Fund Families around MMF Reform Implementation 300 Changes in Government Funds ($ Billions) 250 200 150 100 50 0 -50 0 50 100 150 200 250 300 Outflows from Prime Funds ($ Billions) Note: Each dot represents outflows from prime funds versus changes (positive or negative) in government funds sponsored by the same fund family from November 2015 to October 2016. Source: Securities and Exchange Commission. 3 Figure 4: Cumulative Bill Issuance and Bill/OIS Spread $ Billions Cumulative Net U.S. Treasury Bill Issuance (left scale) 3-Month T-Bill rate less OIS rate (right scale) Basis Points 200 5 150 0 100 -5 50 -10 0 -15 -50 -20 -100 -25 -150 -200 Jan 2017 -30 Apr 2017 Jul 2017 Oct 2017 Sources: U.S. Treasury; Bloomberg L.P. 4 Figure 5: Federal Reserve Liabilities $ Billions Date August 01, 2007 December 27, 2017 Expected Average in 2025* Reserve Balances Federal Reserve Notes RRPs (foreign official sector) RRPs (private sector) Treasury General Account 17 777 32 0 5 2,176 1,569 239 148 186 600 2,200 200 100 300 *Based on median responses to the December 2017 Survey of Primary Dealers and Survey of Market Participants, conditional on not moving to the zero low er bound before the end of 2025. Sources: Federal Reserve Board; Federal Reserve Bank of New York. 5