1.0Liberty Street Economicshttps://libertystreeteconomics.newyorkfed.orgmaureeneganhttps://libertystreeteconomics.newyorkfed.org/author/maureenegan-2-2-2-2-2-2-2-2-2-2-2-2-2-2-2-2-2-2-2/rich600338<blockquote class="wp-embedded-content" data-secret="lizF0A0Mlz"><a href="https://libertystreeteconomics.newyorkfed.org/2022/10/with-abundant-reserves-do-banks-adjust-reserve-balances-to-accommodate-payment-flows/">With Abundant Reserves, Do Banks Adjust Reserve Balances to Accommodate Payment Flows?</a></blockquote><iframe sandbox="allow-scripts" security="restricted" src="https://libertystreeteconomics.newyorkfed.org/2022/10/with-abundant-reserves-do-banks-adjust-reserve-balances-to-accommodate-payment-flows/embed/#?secret=lizF0A0Mlz" width="600" height="338" title="“With Abundant Reserves, Do Banks Adjust Reserve Balances to Accommodate Payment Flows?” — Liberty Street Economics" data-secret="lizF0A0Mlz" frameborder="0" marginwidth="0" marginheight="0" scrolling="no" class="wp-embedded-content"></iframe><script> /*! This file is auto-generated */ !function(d,l){"use strict";l.querySelector&&d.addEventListener&&"undefined"!=typeof URL&&(d.wp=d.wp||{},d.wp.receiveEmbedMessage||(d.wp.receiveEmbedMessage=function(e){var t=e.data;if((t||t.secret||t.message||t.value)&&!/[^a-zA-Z0-9]/.test(t.secret)){for(var s,r,n,a=l.querySelectorAll('iframe[data-secret="'+t.secret+'"]'),o=l.querySelectorAll('blockquote[data-secret="'+t.secret+'"]'),c=new RegExp("^https?:$","i"),i=0;i<o.length;i++)o[i].style.display="none";for(i=0;i<a.length;i++)s=a[i],e.source===s.contentWindow&&(s.removeAttribute("style"),"height"===t.message?(1e3<(r=parseInt(t.value,10))?r=1e3:~~r<200&&(r=200),s.height=r):"link"===t.message&&(r=new URL(s.getAttribute("src")),n=new URL(t.value),c.test(n.protocol))&&n.host===r.host&&l.activeElement===s&&(d.top.location.href=t.value))}},d.addEventListener("message",d.wp.receiveEmbedMessage,!1),l.addEventListener("DOMContentLoaded",function(){for(var e,t,s=l.querySelectorAll("iframe.wp-embedded-content"),r=0;r<s.length;r++)(t=(e=s[r]).getAttribute("data-secret"))||(t=Math.random().toString(36).substring(2,12),e.src+="#?secret="+t,e.setAttribute("data-secret",t)),e.contentWindow.postMessage({message:"ready",secret:t},"*")},!1)))}(window,document); </script> https://libertystreeteconomics.newyorkfed.org/wp-content/uploads/sites/2/2022/10/LSE_2022_reserve-balances_copeland_460.jpg920576As a result of the global financial crisis (GFC), the Federal Reserve switched from a regime of scarce reserves to one of abundant reserves. In this post, we explore how banks’ day-to-day management of reserve balances with respect to payment flows changed with this regime switch. We find that bank behavior did not change on average; under both regimes, banks increased their opening balances when they expected higher outgoing payments and, similarly, decreased these balances with expected higher incoming payments. There are substantial differences across banks, however. At the introduction of the abundant-reserves regime, small domestic banks no longer adjusted balances alongside changes in outgoing payments.