Working Paper

Retail sweep programs and bank reserves, 1994--1999

Abstract: Since January 1994, the Federal Reserve Board has permitted depository institutions in the United States to implement so-called retail sweep programs. The essence of these programs is computer software that dynamically reclassifies customer deposits between transaction accounts, which are subject to statutory reserve requirement ratios as high as 10 percent, and money market deposit accounts, which have a zero ratio. Through the use of such software, hundreds of banks have sharply reduced the amount of their required reserves. In some cases, this new level of required reserves is less than the amount that the bank requires for its ordinary, day-to-day business. In the terminology introduced by Anderson and Rasche (1996b), such deposit-sweeping activity has allowed these banks to become \"economically nonbound,\" and has reduced to zero the economic burden (\"tax\") due to statutory reserve requirements. In this analysis, we examine a large panel of U.S. banks and develop quantitative estimates of the impact of sweep software programs on the demand for bank reserves.

Keywords: Money supply; Bank reserves; Monetary policy - United States;

Status: Published in Federal Reserve Bank of St. Louis Review, January/February 2001, 83(1), pp. 51-72

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2000

Number: 2000-023