14 Jan 2016

Federal Reserve Banks: Total Assets vs. Reserve Balances

Federal Reserve 15 Comments

Here’s something interesting, possibly disturbing, that I just noticed while prepping for a radio interview:

The red line shows that since the “taper” ended, the Fed has been treading water with its assets, rolling over bonds as they mature but not letting its total holdings drop.

On the other hand, the blue line shows the total reserves in the banking system. I’m not sure why it bounces around so much, or why it has dropped ~$230 billion since late December. There is no seasonal adjustment on the blue line, but the other dips didn’t occur in Dec/Jan.

Any thoughts?

15 Responses to “Federal Reserve Banks: Total Assets vs. Reserve Balances”

  1. Bob Rooney says:

    Rate hike?

  2. Capt. J Parker says:

    Reserves can fluctuate but the Fed can still have the money more or less bottled up in the form of term deposits, treasury deposits or reverse repos. All of these count as liabilities but only bank deposits count as reserves. Changing the mix between bank deposits and reverse repos wont alter total liabilities so there will be no alteration in corresponding assets. Compare bank deposits in the third figure in this link: http://econbrowser.com/archives/2015/12/managing-the-feds-balance-sheet to reserve balances for 2015. My understanding is that the Fed is using reverse repos to increase the Fed funds rate. I imagine the drop in reserves (bank deposits) in Dec 2015 reflects more reverse repos on the liabilities side of the Feds balance sheet but fewer bank deposits with total liabilities unchanged.

  3. Tel says:

    It’s pretty much all explained here:


    That should clarify things.

    • Bob Murphy says:

      You should get a video of Rick Astley reading that aloud.

      • Tel says:

        That lot… at Rick’s hourly rate?

        Hmmm, probably there’s someone available online who’s a very close match if you don’t mind a hint of Estonian accent. Could save a buck that way. Would it be a violation of NAP to chain down advocates of more banking regulations and force them.to listen right to the end? I’m trying to sneak that in under “self defense” but a second opinion might be useful.

        You must admit though, being able to cite chapter and verse from page 62000+ of the Federal Register, does come across as a bit more authoritative than “I’m not sure why it bounces around so much. “ Would be a shame for Joe Public to get the wrong idea about how Economists go about considering these important issues.

    • Bob Murphy says:

      Thanks E. Harding, although I’m still not sure I know what the cause is. Do you think it’s just people bulking up on cash (literal currency in their wallets) because they’re nervous?

      • E. Harding says:

        Of course not. The currency stock is growing at a steady rate:


        See the Captain Parker’s graph. I get the same answer as he does. It’s the reverse repos (WLRRA) and especially deposits from the Treasury (WLTGAL). Nothing to worry about.

        • Major.Freedom says:

          Just because cash is growing at a steady pace, that does not necessarily imply that Bob’s chart can’t be explained by changes in currency preference. The “blue line” is composed of more than just currency.

          • E. Harding says:

            Major, the blue line isn’t composed of currency at all.

            • Major.Freedom says:

              Sorry, misspoke. Meant to say cash is composed of more than just currency.

              Reserves held at Fed banks can go up and down on account of “cash” being swapped for currency, all the while currency is going up as per your chart. A rising supply of currency does not imply that changes in currency preferences aren’t responsible for the falling blue line.

              Imagine people swapping their entire bank balances for currency. The currency supply would likely go up, and reserves held at Fed banks would likely go down. I think that is what Murphy is getting at.

        • Bob Murphy says:

          OK thanks E. Harding I somehow missed the Cap’n’s comment until now. I’ll check those two out.

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