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Working Paper
How Does the Fed Adjust its Securities Holdings and Who is Affected?
The Federal Open Market Committee indicated in its September 2017 post-meeting statement that it will initiate in October a balance sheet normalization program to gradually reduce its securities holdings. This action will put in place a policy of reinvesting and redeeming portions of the principal payments received by the Federal Reserve from its holdings of Treasury and agency securities. How are these adjustments to the Federal Reserve?s securities holdings transacted and who is affected? This paper provides a primer regarding how the Federal Reserve accounts for these securities ...
Discussion Paper
The 104th Anniversary of the Federal Reserve's Oldest Data Collection
The Federal Reserve's oldest data collection, designed to gather weekly information about commercial banks' balance sheets, will turn 104 years old this year. Initiated in December 1917 in response to World War I, this voluntary collection currently underlies the Board's H.8 statistical release, Assets and Liabilities of Commercial Banks in the United States. This Note describes the origins of this collection, some highlights regarding its evolution, and how the data are used today.
Discussion Paper
The Federal Reserve's New Approach to Raising Interest Rates
At its December 2015 meeting, the Federal Open Market Committee (FOMC)--the Federal Reserve's monetary policy committee--raised its target range for the federal funds rate by 25 basis points, marking the end of an extraordinary seven-year period during which the federal funds target range was held near zero to support the recovery of the U.S. economy from the worst financial crisis and recession since the Great Depression.
Working Paper
How Have Banks Been Managing the Composition of High-Quality Liquid Assets?
We study banks' post-crisis liquidity management. We construct time series of U.S. banks' holdings of high-quality liquid assets (HQLA) and examine how these assets have been managed in recent years to comply with the Liquidity Coverage Ratio (LCR) requirement. We find that, in becoming LCR compliant, banks initially ramped up their stock of reserve balances. However, once the requirement was met, some banks subsequently shifted the compositions of their liquid portfolios significantly. This raises the question: What drives the compositions of banks? HQLA? We show that a risk-return framework ...
Journal Article
Profits and balance sheet developments at U.S. commercial banks in 2006
The U.S. commercial banking industry continued to be quite profitable in 2006, and industry assets grew considerably. The strength in profitability and growth of bank balance sheets last year reflected favorable U.S. financial market conditions and the generally solid economic expansion. Industry return on equity advanced from its 2005 level, and the return on assets edged up to match its highest annual level in recent decades. Profitability was supported by brisk growth in non-interest income and generally strong asset quality; the flattening of the yield curve and competitive pressures, ...
Journal Article
How Have Banks Been Managing the Composition of High-Quality Liquid Assets?
Banks? liquidity management practices are fundamental to understanding the implementation and transmission of monetary policy. Since the Global Financial Crisis of 2007-09, these practices have been shaped importantly by the liquidity coverage ratio requirement. Given the lack of public data on how banks have been meeting this requirement, we construct estimates of U.S. banks? high-quality liquid assets (HQLA) and examine how banks have managed these assets since the crisis. We find that banks have adopted a wide range of HQLA compositions and show that this empirical finding is consistent ...
Working Paper
The Fed’s “Ample-Reserves” Approach to Implementing Monetary Policy
We describe the Federal Reserve’s (the Fed’s) approach to implementing monetary policy in an ample-reserves regime. We use a stylized model to explain the factors the Fed considers and the tools it uses to ensure interest rate control when the quantity of reserves is ample. Then, we take a close look at the Fed’s experience operating in this regime in the post-crisis period, both as it has raised and lowered its policy rate. Looking ahead, we highlight some considerations relevant for maintaining a level of reserves consistent with the efficient and effective implementation of ...
Discussion Paper
Implementing Monetary Policy in an "Ample-Reserves" Regime: Maintaining an Ample Quantity of Reserves (Note 2 of 3)
In this second note, we describe some important influences on the supply of and demand for reserves and how the Fed will need to account for these influences in maintaining an ample quantity of reserves over the long run. These considerations are most relevant in normal times, not in periods in which there are severe strains in financial markets or weakness in economic activity that necessitate aggressive policy actions by the Fed that substantially increase reserves.
Working Paper
Monetary Policy 101: A Primer on the Fed's Changing Approach to Policy Implementation
The Federal Reserve conducts monetary policy in order to achieve its statutory mandate of maximum employment, stable prices, and moderate long-term interest rates as prescribed by the Congress and laid out in the Federal Reserve Act. For many years prior to the financial crisis, the FOMC set a target for the federal funds rate and achieved that target through purchases and sales of securities in the open market. In the aftermath of the financial crisis, with a superabundant level of reserve balances in the banking system having been created as a result of the Federal Reserve's large scale ...