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Are the Federal Reserve’s “Other Deposits” Sensitive to Changes in Interest Rates?
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 ...
Newsletter
Higher Home Prices and Higher Rates Mean Bigger Affordability Hurdles for the U.S. Consumer
In the U.S., homeownership is often described as part of the “American dream,” a way for consumers to accumulate wealth and gain other economic benefits. Almost two out of three U.S. households own the home they live in, a relatively stable amount over the last decade. Buying a home is usually the largest investment that a consumer will make, and the purchase price usually far exceeds what most can afford out of their current savings. In 2022, roughly 70% of home purchases were made with the help of mortgage financing.
Strengthening Operational Resilience in the Cleared Ecosystem
In November 2023, a ransomware attack on a U.S. subsidiary of the Industrial and Commercial Bank of China brought cyber risk into sharp relief for those who centrally clear financial transactions, especially on the heels of the cyber attack earlier that year on the Dublin-based ION financial trading services group.
Fed’s Mortgage-Backed Securities Purchases Sought Calm, Accommodation During Pandemic
We explore the Federal Reserve’s purchases of agency MBS—mortgage bonds guaranteed by Ginnie Mae, Fannie Mae and Freddie Mac—and related market dynamics during the pandemic, including why mortgage rates fell to historic lows.
Journal Article
Do industrialized countries hold the right foreign exchange reserves?
That central banks should hold foreign currency reserves is a key tenet of the post-Bretton Woods international financial order. But recent growth in the reserve balances of industrialized countries raises questions about what level and composition of reserves are ?right? for these countries. A look at the rationale for reserves and the reserve practices of select countries suggests that large balances may not be needed to maintain an effective exchange rate policy over the medium and long term. Moreover, countries may incur an opportunity cost by holding funds in currency and asset ...
Working Paper
Technology Providers and Financial Stability: Overview of Risks and Regulatory Frameworks
Technology-focused Third-Party Service Providers (TPSPs) have become important players in the operations of financial institutions and the financial markets. This paper summarizes the micro- and macro-prudential regulatory frameworks in place to address risks that TPSPs may pose to the financial system.
Working Paper
Technology Providers and Financial Stability: Overview of Risks and Regulatory Frameworks
Technology-focused Third-Party Service Providers (TPSPs) have become important players in the operations of financial institutions and the financial markets. This paper summarizes micro- and macro-prudential regulatory frameworks in place to address risks that TPSPs pose to the financial system. The key takeaways are as follows: First, in the U.S., TPSPs operate under limited comprehensive prudential regulatory oversight, aimed primarily at ensuring that their products are safe and resilient on an ongoing basis. Second, while banks rely on multiple TPSPs and hundreds of their services daily ...