[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/fip/fedlrv/y2001ijanp51-72nv.83no.1.html
   My bibliography  Save this article

Retail sweep programs and bank reserves, 1994-1999

Author

Listed:
  • Richard G. Anderson
  • Robert H. Rasche
Abstract
Since January 1994, the Federal Reserve Board has permitted depository institutions in the United States to implement so-called ?retail sweep programs.? The essence of these programs is computer software that dynamically reclassifies customer deposits from transaction accounts, which are subject to statutory reserve-requirement ratios as high as 10 percent, to money market deposit accounts, which have a zero ratio. Through the use of such software, hundreds of banks have sharply reduced the amount of their required reserves. In many cases, this new lower requirement places no constraint on the bank because it is less than the amount of reserves (vault cash and deposits at the Federal Reserve) that the bank requires for its ordinary day-to-day business. In the terminology introduced by Anderson and Rasche (1996b), such deposit-sweeping activity has allowed these banks to become ?economically nonbound? and has reduced to zero the economic burden (?tax?) due to statutory reserve requirements. In this analysis, we examine a large panel of U.S. banks and develop quantitative estimates of the impact of sweep software programs on the demand for bank reserves.

Suggested Citation

  • Richard G. Anderson & Robert H. Rasche, 2001. "Retail sweep programs and bank reserves, 1994-1999," Review, Federal Reserve Bank of St. Louis, vol. 83(Jan), pages 51-72.
    • Handle: RePEc:fip:fedlrv:y:2001:i:jan:p:51-72:n:v.83no.1
    as

    Download full text from publisher

    File URL: https://files.stlouisfed.org/files/htdocs/publications/review/01/0101ra.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. William R. Emmons, 1997. "Recent developments in wholesale payments systems," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 23-43.
    2. Kohn, Meir, 2003. "Financial Institutions and Markets," OUP Catalogue, Oxford University Press, edition 2, number 9780195134728.
    3. Mr. Bennett T. McCallum & Ms. Monica Hargraves, 1994. "A Monetary Impulse Measure for Medium-Term Policy Analysis," IMF Working Papers 1994/146, International Monetary Fund.
    4. Paul Bennett & R. Spence Hilton, 1997. "Falling reserve balances and the federal funds rate," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 3(May).
    5. Furfine, Craig H., 2000. "Interbank payments and the daily federal funds rate," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 535-553, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Anderson, Richard G. & Bordo, Michael & Duca, John V., 2017. "Money and velocity during financial crises: From the great depression to the great recession," Journal of Economic Dynamics and Control, Elsevier, vol. 81(C), pages 32-49.
    2. Selva Demiralp & Oscar Jorda, "undated". "The Pavlovian Response of Term Rates to Fed Announcements," Department of Economics 99-06, California Davis - Department of Economics.
    3. Thornton, Daniel L., 2014. "Monetary policy: Why money matters (and interest rates don’t)," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 202-213.
    4. Selva Demiralp, 2001. "Monetary policy in a changing world: rising role of expectations and the anticipation effect," Finance and Economics Discussion Series 2001-55, Board of Governors of the Federal Reserve System (U.S.).
    5. Duca, John V., 2013. "Did the commercial paper funding facility prevent a Great Depression style money market meltdown?," Journal of Financial Stability, Elsevier, vol. 9(4), pages 747-758.
    6. Selva Demiralp & Òscar Jordà, 2002. "The announcement effect: evidence from open market desk data," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 29-48.
    7. Mark G. Guzman, 2008. "The Impact Of Paying Interest On Reserves In The Presence Of Government Deficit Financing," Economic Inquiry, Western Economic Association International, vol. 46(4), pages 624-642, October.
    8. Telser, Lester G., 2007. "Solvency vs competition: Hobson's choice for the Fed," Journal of International Money and Finance, Elsevier, vol. 26(7), pages 1151-1173, November.
    9. Fleissig, Adrian R. & Jones, Barry E., 2015. "The impact of commercial sweeping on the demand for monetary assets during the Great Recession," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 412-422.
    10. Richard G. Anderson & Barry E. Jones, 2011. "A comprehensive revision of the U.S. monetary services (divisia) indexes," Review, Federal Reserve Bank of St. Louis, vol. 93(Sep), pages 325-360.
    11. Daniel L. Thornton, 2010. "The relationship between the daily and policy-relevant liquidity effects," Review, Federal Reserve Bank of St. Louis, vol. 92(Jan), pages 73-88.
    12. John V. Duca, 2014. "What drives the shadow banking system in the short and long run?," Working Papers 1401, Federal Reserve Bank of Dallas.
    13. Duca, John V., 2016. "How capital regulation and other factors drive the role of shadow banking in funding short-term business credit," Journal of Banking & Finance, Elsevier, vol. 69(S1), pages 10-24.
    14. Binner, J.M. & Tino, P. & Tepper, J. & Anderson, R. & Jones, B. & Kendall, G., 2010. "Does money matter in inflation forecasting?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(21), pages 4793-4808.
    15. Ryan S. Mattson & Philippe de Peretti, 2014. "Investigating the Role of Real Divisia Money in Persistence-Robust Econometric Models," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00984827, HAL.
    16. William Barnett & Jia Liu & Ryan Mattson & Jeff Noort, 2013. "The New CFS Divisia Monetary Aggregates: Design, Construction, and Data Sources," Open Economies Review, Springer, vol. 24(1), pages 101-124, February.
    17. Belongia, Michael T. & Ireland, Peter N., 2024. "The transmission of monetary policy shocks through the markets for reserves and money," Journal of Macroeconomics, Elsevier, vol. 80(C).
    18. Alfred A. Haug & Julie Tam, 2007. "A Closer Look At Long‐Run U.S. Money Demand: Linear Or Nonlinear Error‐Correction With M0, M1, Or M2?," Economic Inquiry, Western Economic Association International, vol. 45(2), pages 363-376, April.
    19. Parantap Basu, 2014. "Quantitative Easing in an Endogenous Growth Model," CEGAP Working Papers 2014_01, Durham University Business School.
    20. Tatom, John, 2006. "Money Growth Has Slowed Sharply—Should Anybody Care?," MPRA Paper 17780, University Library of Munich, Germany.
    21. Selva Demiralp & Òscar Jordà, 2002. "The announcement effect: evidence from open market desk data," Economic Policy Review, Federal Reserve Bank of New York, vol. 8(May), pages 29-48.
    22. Selva Demiralp & Oscar Jorda, "undated". "The Pavlovian Response of Term Rates to Fed Announcements," Department of Economics 99-06, California Davis - Department of Economics.
    23. William T. Gavin, 2009. "More money: understanding recent changes in the monetary base," Review, Federal Reserve Bank of St. Louis, vol. 91(Mar), pages 49-60.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Richard G. Anderson & Suresh K. Nair, 2005. "A specialized inventory problem in banks: optimizing retail sweeps," Working Papers 2005-023, Federal Reserve Bank of St. Louis.
    2. Green, Christopher & Bai, Ye & Murinde, Victor & Ngoka, Kethi & Maana, Isaya & Tiriongo, Samuel, 2016. "Overnight interbank markets and the determination of the interbank rate: A selective survey," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 149-161.
    3. Vitor Gaspar & Gabriel Pérez Quir? & Hugo Rodr?uez Mendiz?al, 2004. "Interest Rate Determination in the Interbank Market," UFAE and IAE Working Papers 603.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    4. Prati, Alessandro & Bartolini, Leonardo & Bertola, Giuseppe, 2003. "The overnight interbank market: Evidence from the G-7 and the Euro zone," Journal of Banking & Finance, Elsevier, vol. 27(10), pages 2045-2083, October.
    5. Link, Thomas & Neyer, Ulrike, 2016. "Transaction Cost Heterogeneity in the Interbank Market and Monetary Policy Implementation under alternative Interest Corridor Systems," VfS Annual Conference 2016 (Augsburg): Demographic Change 145853, Verein für Socialpolitik / German Economic Association.
    6. Heller, Daniel & Lengwiler, Yvan, 2003. "Payment obligations, reserve requirements, and the demand for central bank balances," Journal of Monetary Economics, Elsevier, vol. 50(2), pages 419-432, March.
    7. Viral V. Acharya & Ouarda Merrouche, 2013. "Precautionary Hoarding of Liquidity and Interbank Markets: Evidence from the Subprime Crisis," Review of Finance, European Finance Association, vol. 17(1), pages 107-160.
    8. Q. Farooq Akram & Casper Christophersen, 2017. "Pricing in the Norwegian Interbank Market – the Effects of Liquidity and Implicit Government Support," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(2), pages 165-204, April.
    9. Paolo Angelini & Andrea Nobili & Cristina Picillo, 2011. "The Interbank Market after August 2007: What Has Changed, and Why?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(5), pages 923-958, August.
    10. Selva Demiralp & Òscar Jordà, 2002. "The announcement effect: evidence from open market desk data," Economic Policy Review, Federal Reserve Bank of New York, vol. 8(May), pages 29-48.
    11. Uesugi, Iichiro, 2002. "Measuring the Liquidity Effect: The Case of Japan," Journal of the Japanese and International Economies, Elsevier, vol. 16(3), pages 289-316, September.
    12. Michael Woodford, 2001. "Monetary policy in the information economy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 297-370.
    13. Klee, Elizabeth, 2010. "Operational outages and aggregate uncertainty in the federal funds market," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2386-2402, October.
    14. Paul Bennett & Stavros Peristiani, 2002. "Are U.S. reserve requirements still binding?," Economic Policy Review, Federal Reserve Bank of New York, vol. 8(May), pages 53-68.
    15. repec:zbw:bofitp:2009_018 is not listed on IDEAS
    16. Cysne, Rubens Penha, 2005. "What happens after the central bank of Brazil increases the target interbank rate by 1%?," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 584, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    17. Mehrotra, Aaron & Sánchez-Fung, José R., 2011. "Assessing McCallum and Taylor rules in a cross-section of emerging market economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(2), pages 207-228, April.
    18. Bartolini, Leonardo & Prati, Alessandro, 2006. "Cross-country differences in monetary policy execution and money market rates' volatility," European Economic Review, Elsevier, vol. 50(2), pages 349-376, February.
    19. John A. Weinberg & Huberto M. Ennis, 2009. "A Model of Stigma in the Fed Funds Market," 2009 Meeting Papers 956, Society for Economic Dynamics.
    20. Ulrike Neyer, 2009. "Interest on Reserves and the Flexibility of Monetary Policy in the Euro Area," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(2), pages 417-438, June.
    21. Mario Di Filippo & Angelo Ranaldo & Jan Wrampelmeyer, 2022. "Unsecured and Secured Funding," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(2-3), pages 651-662, March.

    More about this item

    Keywords

    Money supply; Bank reserves;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedlrv:y:2001:i:jan:p:51-72:n:v.83no.1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Scott St. Louis (email available below). General contact details of provider: https://edirc.repec.org/data/frbslus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.