November 2021
Senior Financial Officer Survey
Four of the respondents reported that their bank is a primary dealer and is already an SRF counterparty. Another 61 respondents reported that their bank meets the initial criteria and is not already an SRF counterparty; of these 61 respondents, 26—or about 45 percent—reported that their bank intends to or has expressed interest in becoming a counterparty, while the remaining 35 reported that their bank is not interested in becoming a counterparty.
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Key takeaways from the survey included the following:
- Close to one-half of the survey respondents reported that their bank had taken actions to reduce either the level or growth in its reserve balances in the last six months.
—Among these respondents, a concern about net interest margins and an increase in the expected return on alternative HQLA investments relative to the interest on reserve bal- ances (IORB) rate were the factors most commonly cited as important or very important in the decision to take such actions. Among respondents who rated these factors highly, most reported that increased holdings of other assets, including other Level 1 HQLA, non-Level 1 HQLA, and non-HQLA assets, were an important or very important com- ponent of their bank’s reserve management strategy.
—Among respondents who reported that a concern about net interest margins or a desire to preserve or decrease balance sheet size was an important or very important factor that prompted their bank’s actions, the most commonly reported important or very impor- tant liability adjustment actions were allowing outstanding wholesale funding liabilities to mature without replacement and reducing deposit rates on non-operational deposits. - About one-fourth of respondents reported that their bank had taken actions to reduce the level or growth of its entire balance sheet in the last six months.
- Looking ahead, about 40 percent of respondents reported that they expect their bank to take actions to reduce the level or growth of its reserve balances in the next six months.
- Almost 40 percent of the respondents whose bank is not already a counterparty to the SRF reported that their bank has expressed or intends to express interest in becoming a counter- party. Among these respondents, the factors that were most commonly reported as impor- tant or very important in explaining the interest in the SRF were that the SRF comple- ments the discount window as a backstop liquidity source, that the respondent’s bank holds a large amount of eligible securities so an additional liquidity source would be beneficial, and that the SRF would provide increased short-term monetization capacity for the bank’s HQLA portfolio. Among the respondents whose bank is not interested in becoming a counterparty to the SRF, the factors most commonly reported as important or very impor- tant to that outlook were that the respondent’s bank does not need an additional source of liquidity and that the respondent’s bank is not set up to transact as a cash borrower on the tri-party platform and the incremental cost of establishing and maintaining this capacity exceeds the benefit of being an SRF counterparty.
The full survey is available at https://www.federalreserve.gov/data/sfos/files/senior-financial-officer-survey-202111.pdf