Federal Reserve survey shows 2/3rds of banks ready to limit reserve balances

The Federal Reserve Board on Thursday released results of a survey of senior financial officers at banks about their strategies and practices for managing reserve balances. The Senior Financial Officer Survey is used by the Board to obtain information about deposit pricing and behavior, bank liability management, the provision of financial services, and reserve management strategies and practices. The most recent survey was conducted in collaboration with the Federal Reserve Bank of New York between March 19, 2021, and April 2, 2021, and includes responses from banks that held approximately three quarters of total banking system reserve balances at the time of the survey.

Key takeaways from the survey included the following:

  • About 40 percent of respondents whose bank had participated in the September 2020 SFOS reported their bank’s average end-of-day reserve balance level grew between August and December 2020 by more than the expectations they reported in the earlier survey. Among these respondents, a larger-than-expected deposit inflow was by far the factor most commonly cited as the most or second most important driver that led to the greater-than- expected reserve balances.
    • Almost 40 percent of respondents expect their bank’s average end-of-day reserve level in June 2021 to be stable relative to the level in February 2021. The remaining respondents were roughly evenly split between those who expect their bank’s reserve balances to increase and those who expect balances to decrease.
      • One-half of the respondents expect their bank would take no specific actions to adjust the level or growth of its reserve balances to reach the expected level in June, while a slightly smaller number of respondents expect their bank to take actions to reduce either the level or growth of its reserve balances.
  • One-third of respondents reported their bank is already taking action to limit the size of its balance sheet and expect their bank to continue to do so. Another one-third reported their bank would take action to preserve or reduce the size of its balance sheet if it grew. The remaining respondents reported their bank would not limit the size of its balance sheet regardless of growth.
    • Among the two-thirds of respondents who reported their bank is limiting, or would limit under certain growth assumptions, the size of its balance sheet, almost half rated net interest margin pressure and return on assets as important or very important factors in that decision. These same respondents cited allowing outstanding wholesale funding liabilities to mature without replacement and reducing deposit rates on non-operational deposits as the most likely liability adjustments that would be used to reduce the level or growth of the balance sheet.
  • About one-fourth of respondents reported their bank would increase overnight unsecured borrowing if short-term interest rates fell relative to the interest on excess reserves (IOER) rate. The remaining respondents reported their bank either did not engage in such borrowing or would not increase its borrowing even if short-term interest rates fell more than 10 basis points relative to the IOER rate.
  • A large majority of respondents indicated their bank would be willing to borrow discount window primary credit only if other funding sources became less available due to market- wide conditions.
  • Some respondents reported that the availability of funding from the Paycheck Protection Program Liquidity Facility (PPPLF) has increased the willingness or ability of their ban — including some banks that have not participated in the PPPLF—to make Paycheck Protection Program (PPP) loans.

The survey is available at https://www.federalreserve.gov/data/sfos/files/senior-financial-officer-survey-202103.pdf

Related Posts

Previous Post
ISDA white paper advocates CDM for risk, capital and margin reporting
Next Post
US senator pushes for OCC review of crypto fintechs

Fill out this field
Fill out this field
Please enter a valid email address.


Reset password

Create an account