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I am sure most of you are already aware of the details regarding the platinum $1tr coin alternative to austerity due to the debt-ceiling not being raised. I will use this post only to provide a short technical description of the coin accounting:

Step first, the US Mint mints the coin and Treasury deposits it at the Fed. The Fed credits the Treasury TGA account with the face value (actually the seigniorate profit) and keeps the coin as an asset.

The Treasury is only allowed to spend what has already been appropriated by Congress. As a result, no actual change happens to its spending schedule. Treasury debits its TGA account and credits private sector deposit accounts while in the process the Fed credits bank reserve accounts with the same amount. Any taxes do the opposite and in the end, the private money supply is increased by the amount of deficit spending performed as well as the bank reserves of the financial sector.

Compared to debt-financed deficit spending, the private sector still holds the same increased deposit balances but the financial sector ends up with larger bank reserves as an asset instead of Treasury bonds and the monetary base is larger.

Up to this point, spending through coin seigniorage sounds exactly like QE. Since bank reserves earn Interest On Reserves (IOR) the Fed is left with two choices:

  • It can allow bank reserves to increase since IOR will make sure that no change happens to the Federal Funds rate. In case it is targeting a specific amount of bank reserve balances it might have to lower its ongoing QE operations.
  • It can remove the excess reserves created by the Treasury spending by performing reverse repos with primary dealers. The monetary base will be lowered while the Fed cost will be the same since reverse repo rates arbitrage with IOR.

I am not aware of the legal details but the Fed should also probably be able to auction short-term debt certificates in exchange for excess reserves. As long as these certificates are negotiable, they would be equivalent to T-Bills and function as ‘government’ debt. In fact I believe that in the current context of high demand for short-term safe assets (evident in the large balances of non-interest bearing deposit accounts which have unlimited FDIC guarantee), creating a mechanism to transform bank reserves to short-term negotiable securities (either through Fed debt certificates or Treasury T-Bill auctions) is something that should be done regardless of the platinum coin usage and would avoid depressed short-term money market rates.

The $1tr coin should be considered a short-term alternative until Congress allows the debt ceiling to be increased (or removed completely). In reality, Treasury would most probably mint a much smaller face value only to be able to maintain government operations while Congress is negotiating. As soon as a deal is reached, the Treasury will sell securities for an amount equal to the deficit spending already done. Banks will use the excess reserves to buy them and the Treasury’s balance at the Fed will return to the amount it held just after the Fed credited the coin face value. At that point Treasure can just cancel the coin and have its account balance lowered to previous levels while the Fed will shrink its balance sheet by that amount with no other consequence.

ECB released its weekly statement for the week ending on 29 June.

Asset Side

On the asset side, weekly USD liquidity-providing operations increased from $1.6bn to $2.6bn (+$1bn), continuing the trend of growth in USD swap usage. Lending to credit institutions increased by €20.3bn through a larger MRO of €180.4bn as well as an increase in LTRO (+€8.2bn). ‘Other Claims’ (ELA) did not post any significant change which is a sign of stabilization.

Liabilities Side

Bank reserves increased by €21.5bn, mainly due to a large decrease in current accounts (€19.6bn). What is quite worrying is the fact that ‘Deposits related to margin calls’ increased by almost €4.3bn, which means that assets posted as collateral in ECB liquidity operations lost value. It will be interesting to see if this change is permanent or reverses course after the positive results of last week’s Euro summit. General government accounts decreased €4.3bn.

A very positive development was the fact that ‘Liabilities to non-euro area residents’ were stable last week, which means that (especially accounting for increased USD swap usage) there actually were some net euro inflows after a long time.


This week’s MRO was lower than the maturing one (at €163.6bn, down €16.8bn from €180.4bn). Since the reserve maintenance period ends on 10 July and average current account holdings were around to €118.5bn (compared with a reserve requirement of €106.9bn), it is possible that the latest lower MRO bid is related with lower needs for reserve requirements and will be reflected in lower current account holdings (they were €95.9bn today). Still, total liquidity is higher today (deposit facility + current accounts + fixed term deposits) at €1112.9bn, compared to €1100bn in the financial statement, which might suggest funds movement from government accounts.

Yesterday’s ECB MRO was double than usual, at 119.4bn rather than the previous 51.2bn, an increase of €68.2bn. Going through daily ECB data it looks like current accounts holdings and resource to the deposit facility did not change much (actually the deposit facility was €2.9bn lower while current accounts increased by €5.5bn) meaning that bank reserves increased by €2.6bn. On the other hand, ‘Net liquidity effect from Autonomous Factors and SMP’ increased by €66.3bn which basically corresponds to banknotes and government deposits. Since there was an equal increase in ECB’s liabilities it is clear that no ELA repayment was the reason for the increased MRO lending.

The most probable explanation is an increase in government deposits. Still, this increase is just huge and requires more details (which don’t seem to be available at this point).

Καθημερινά διαβάζω άρθρα στον τύπο τα οποία προσπαθούν να συνδέσουν το μέγεθος της χρήσης των λογαριασμών καταθέσεων (των τραπεζών) στην ΕΚΤ με τον μειωμένο δανεισμό των τραπεζών μεταξύ τους. Η οπτική αυτή είναι λάθος και το καθημερινό υπόλοιπο των λογαριασμών δεν πρέπει να χρησιμοποιείται ώς ένα είδος ‘proxy’ για το δανεισμό των τραπεζών.

Τα bank reserves είναι liabilities της ΕΚΤ. Δημιουργούνται και καταστρέφονται μέσω της επέκτασης ή μείωσης του ισολογισμού της ΕΚΤ. Η τελευταία (πέραν τυχόν απευθείας αγορών όπως το SMP) είναι καθαρά αμυντική στον τρόπο λειτουργίας της. Εφόσον έχει στόχο ένα μη μηδενικό διατραπεζικό επιτόκιο και το επιτόκιο στη διευκόλυνση καταθέσεων είναι χαμηλότερο απο αυτόν το στόχο, η ΕΚΤ αναγκαστικά πρέπει να καλύπτει τη (ανελαστική) ζήτηση για bank reserves. Στην τρέχουσα περίοδο που οι τράπεζες δε δανείζουν η μία την άλλη αλλά διατηρούν τα reserves (συμβιβαζόμενες με το χαμηλό επιτόκιο κατάθεσης σε σχέση με το διατραπεζικό), η ΕΚΤ πραγματοποιεί πράξεις ρευστότητας με full allotment (ώστε να καλύπτει τις ανάγκες των τραπεζών χωρίς να βασίζεται στην υπόθεση ότι η διατραπεζική λειτουργεί ιδανικά) και παρέχει όσα bank reserves ζητούνται, παράλληλα με την παροχή του discount window (οριακή χρηματοδότηση). Αυτά μετά εμφανίζονται αναγκαστικά στο παθητικό της. Κάποια μπορούν να μετατραπούν σε άλλου τύπου καταχωρήσεις του παθητικού της όπως χαρτονομίσματα ή σε καταθέσεις κεντρικών κυβερνήσεων (αν και οι τελευταίες προσπαθούν πάντα να διατηρούν συγκεκριμένα επίπεδα στα υπόλοιπα των καταθέσεων τους ώστε να διευκολύνουν την κεντρική τράπεζα). Οι τράπεζες όμως δε διαθέτουν τρόπο να μειώσουν τον ισολογισμό της ΕΚΤ στις περιόδους ανάμεσα στις πράξεις ρευστότητας. Μόνο να ζητήσουν λιγότερα (excess) reserves σε κάποιο operation της τελευταίας ή να μην κάνουν χρήση του discount window.

Αν η ΕΚΤ είχε κάνει πράξεις 2 τρις € θα βλέπαμε αντίστοιχα επίπεδα στις καταθέσεις στην ΕΚΤ. Οι καταθέσεις αυτές είναι overnight και ενεργοποιούνται μετά το κλείσιμο του Target2, στη διάρκεια λειτουργίας του οποίου και μόνο μπορεί να γίνει ο δανεισμός μεταξύ των τραπεζών. Ο δανεισμός αυτός με άλλα λόγια απλά μεταβάλει τον κύριο των reserves. Όποιος και αν τα κατέχει, στο τέλος της ημέρας θα τα καταθέσει στη ΕΚΤ. Τα required reserves πληρώνονται τόκο ίσο με το επιτόκιο χρηματοδότησης, τα reserves  λόγω των απευθείας αγορών της ΕΚΤ (SMP) κατατίθενται σε εβδομαδιαία term deposits που παρέχει (μέσω δημοπρασιών μεταβλητού επιτοκίου) η ΕΚΤ και τα υπόλοιπα κατατίθενται στην ημερήσια (overnight) διευκόλυνση καταθέσεων με επιτόκιο (αυτή τη στιγμή) 0,25%.

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Kostas Kalevras

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