Liberty Street Economics

« | Main | »

April 8, 2015

The FR 2420 Data Collection: A New Base for the Fed Funds Rate

On April 1, 2014, the Federal Reserve began collecting transaction-level data on federal funds, Eurodollars, and certificates of deposits from a large set of domestic banks and agencies of foreign banks operating in the United States. Previously, the Fed had only received fed funds and Eurodollar data from major brokers, and not directly from the banks borrowing in these markets. These new data, collected on form FR 2420, have helped the Fed better understand activity in the fed funds and Eurodollar markets. In this post, we focus on the new data on fed funds, in light of the Federal Reserve Bank of New York’s Trading Desk announcement that it plans to use these data to calculate and publish the fed funds effective rate. We plan to publish other posts on the fed funds and Eurodollar markets over the next several months.

The fed funds market, as defined by Regulation D, consists of unsecured borrowing of U.S. dollars, usually overnight, by depository institutions (DIs) either from other DIs or from certain other eligible entities, including government-sponsored enterprises. This market is important to the implementation of monetary policy because the Federal Open Market Committee sets a target or a target range for the fed funds effective rate (FFER) to achieve its dual mandate of maximum employment and price stability. For decades, the FFER has been calculated as the volume-weighted average of rates on fed funds trades that were arranged by major brokers on the previous day.

There are two main areas in which FR 2420 data can improve the process for producing the FFER: higher transaction volumes—and therefore a larger base of activity from which to calculate the rate—and transaction-level detail for better data monitoring. With the FR 2420 data, the Fed can better assess the quality of the data submissions, in line with recent international focus on best practices for reference rates. The FR 2420 data are currently collected from 163 DIs, of which 53 are domestic banks or thrifts and 110 are branches or agencies of foreign banking organizations. Since July 2014, the average overnight borrowing in the fed funds market reported via the FR 2420 form has been around $50 billion and the number of reported overnight transactions in fed funds has averaged about 300 per day, never dropping below 200. These overnight fed funds volumes have been roughly 25 percent larger than volumes observed in brokered data, largely because FR 2420 data include both transactions intermediated by brokers and transactions that are negotiated directly between two counterparties.

Given these benefits, the Fed plans to use FR 2420 data to eventually replace brokered data in calculating the FFER. Based on data received so far, the change in data source does not seem likely to have a significant impact on FFER levels. As the chart below shows, the rolling five-day average of the volume-weighted medians—the rates at the 50th percentile of transaction volumes—as calculated from FR 2420 and brokered data have tracked each other closely, although on occasion nonbrokered activity generates small differences between the two. Likewise, the five-day rolling average of the volume-weighted 10th and 90th percentile rates, the rates at or under which 10 percent or 90 percent of the volume occurs, have behaved very similarly in the FR 2420 and brokered data.


The overall distribution of rates is also quite similar in the two data sets (see chart below). As in the brokered data, the majority of volume in the FR 2420 data occurs close to the brokered FFER. And, since July 2014, when the New York Fed started collecting FR 2420 data, the daily volume-weighted average rate calculated from FR 2420 data has differed from the FFER very little, by less than 1 basis point on average.

Note, however, that there has been some activity at higher rates (around the rate at which the Fed pays interest rate on excess reserves, currently 25 basis points) that is not currently captured by the FR 2420. This volume mainly represents smaller banks borrowing from other banks, whereas the Federal Home Loan Banks, which are the primary lenders in the market, comprise the majority of the volume occurring near the FFER.


Before making changes to the FFER, the Fed is proposing
revisions to the FR 2420 data collection in order to refine, among other things, the criteria by which reporting banks are selected and by which borrowing transactions are classified as fed funds. These enhancements are meant to capture even more activity, including more of the bank-to-bank transactions seen in the brokered data that occur above the interest rate paid by the Fed on excess reserves.

Previous Posts on Related Topics

Who’s Borrowing in the Fed Funds Market?
Who’s Lending in the Fed Funds Market?


The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.

Marco Cipriani is a Research Officer in the Federal Reserve Bank of New York’s Research and Statistics Group.

Jonathan Cohn is an analyst in the Bank’s Markets Group.

About the Blog

Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.

The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.

Liberty Street Economics does not publish new posts during the blackout periods surrounding Federal Open Market Committee meetings.

The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.

Economic Research Tracker

Image of NYFED Economic Research Tracker Icon Liberty Street Economics is available on the iPhone® and iPad® and can be customized by economic research topic or economist.

Economic Inequality

image of inequality icons for the Economic Inequality: A Research Series

This ongoing Liberty Street Economics series analyzes disparities in economic and policy outcomes by race, gender, age, region, income, and other factors.

Most Read this Year

Comment Guidelines


We encourage your comments and queries on our posts and will publish them (below the post) subject to the following guidelines:

Please be brief: Comments are limited to 1,500 characters.

Please be aware: Comments submitted shortly before or during the FOMC blackout may not be published until after the blackout.

Please be relevant: Comments are moderated and will not appear until they have been reviewed to ensure that they are substantive and clearly related to the topic of the post.

Please be respectful: We reserve the right not to post any comment, and will not post comments that are abusive, harassing, obscene, or commercial in nature. No notice will be given regarding whether a submission will or will
not be posted.‎

Comments with links: Please do not include any links in your comment, even if you feel the links will contribute to the discussion. Comments with links will not be posted.

Send Us Feedback

Disclosure Policy

The LSE editors ask authors submitting a post to the blog to confirm that they have no conflicts of interest as defined by the American Economic Association in its Disclosure Policy. If an author has sources of financial support or other interests that could be perceived as influencing the research presented in the post, we disclose that fact in a statement prepared by the author and appended to the author information at the end of the post. If the author has no such interests to disclose, no statement is provided. Note, however, that we do indicate in all cases if a data vendor or other party has a right to review a post.