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Are the Federal Reserve’s “Other Deposits” Sensitive to Changes in Interest Rates?

Abstract: When the Federal Reserve reduces the size of its balance sheet through quantitative tightening,1 changes in nonreserve liabilities impact the level of reserves in the U.S. banking system.2 In this article, I examine the category of “other deposits” on the liability side of the Fed’s balance sheet—namely, the deposits with Federal Reserve Banks other than bank reserve balances—to understand its evolution since March 2020, when the Covid-19 pandemic hit the U.S. I find that deposits of U.S. central counterparties (CCPs)3 at the Federal Reserve Banks (what I am referring to as “CCP deposits”) now account for most of these other deposits with the Fed. I also find some evidence that the balances of CCP deposits are sensitive to changes in short-term interest rates.

Keywords: Macroeconomics; financial economics;

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Chicago Fed Letter

Publication Date: 2024-12

Volume: 504

Pages: 8