Fed blog suggests high bank reserves are better for financial stability

Stressed Outflows and the Supply of Central Bank Reserves
Ryan Bush, Adam Kirk, Antoine Martin, Phil Weed, and Patricia Zobel

Since the financial crisis, banking regulators around the world have been intensely aware of liquidity risk and, in part as a response, have introduced the Basel III liquidity regulation. Today, the world’s largest banks hold substantial liquidity buffers comprising both securities and central bank reserves, to satisfy internal liquidity stress tests and minimum quantitative regulatory requirements. The appropriate level of liquidity buffers depends on the likely outflows in a market stress situation. In this post, we use public data to provide a rough estimate of stressed outflows that the largest banks would face and consider how they could meet these outflows.

The article is available at https://libertystreeteconomics.newyorkfed.org/2019/02/stressed-outflows-and-the-supply-of-central-bank-reserves.html

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