Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/247897 
Year of Publication: 
2021
Series/Report no.: 
Staff Report No. 974
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
The Federal Reserve's "balance-sheet normalization," which reduced aggregate reserves between 2017 and September 2019, increased repo rate distortions, the severity of rate spikes, and intraday payment timing stresses, culminating with a significant disruption in Treasury repo markets in mid-September 2019. We show that repo rates rose above efficient-market levels when the total reserve balances held at the Federal Reserve by the largest repo-active bank holding companies declined and that repo rate spikes are strongly associated with delayed intraday payments of reserves to these large bank holding companies. Intraday payment timing stresses are magnified by early-morning settlement of Treasury security issuances. Substantially higher aggregate levels of reserves than existed in the period leading up to September 2019 would likely have eliminated most or all of these payment timing stresses and repo rate spikes.
Subjects: 
repo rates
reserves
Treasuries
payments
central bank balance sheet
JEL: 
G14
D47
D82
Document Type: 
Working Paper

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