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Treasury General Account: Difference between revisions
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===== Liquidity coming from Reserve Repo ===== | ===== Liquidity coming from Reserve Repo ===== | ||
Fed’s Reverse Repo facility stands at 2.1 trillion, and offers a reward of 5.05. <ref>https://www.newyorkfed.org/markets/desk-operations/reverse-repo</ref> | Fed’s Reverse Repo facility stands at $2.1 trillion, and offers a reward of 5.05%. <ref>https://www.newyorkfed.org/markets/desk-operations/reverse-repo</ref> | ||
Money market funds (MMF) the primary user of the Reverse Repo Facility have historically been the big buyers of T-bills <ref>https://www.sec.gov/files/mmfs-treasury-market-090122.pdf</ref>. And there is a prevalent belief among analyst if a significant portion of U.S. Treasury securities is funded by (RRP) balances, it would have no major effect on risk assets, such as equities. | Money market funds (MMF) the primary user of the Reverse Repo Facility have historically been the big buyers of T-bills <ref>https://www.sec.gov/files/mmfs-treasury-market-090122.pdf</ref>. And there is a prevalent belief among analyst if a significant portion of U.S. Treasury securities is funded by (RRP) balances, it would have no major effect on risk assets, such as equities. | ||
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Currentely bank reserves stands at $3.3 triliion, and the FED offer reward of 5.15%.<ref>https://fred.stlouisfed.org/series/TOTRESNS</ref><ref>https://www.federalreserve.gov/monetarypolicy/reserve-balances.htm</ref> | |||
If the debt issuance is not being supported by MMF and the reverse repo facility, a large percentage of the issuance will have to be supported by a drain of bank reserves. Some analyst suggest a rapid falling reserves level could potential be negative for risk assets and credit growth. | |||
The problem from this scenario is that the FED has adopted an ample reserves framework <ref>https://www.newyorkfed.org/newsevents/speeches/2022/zob220908#:~:text=In%20this%20system%2C%20an%20ample,over%20short%2Dterm%20interest%20rates.&text=The%20Federal%20Reserve%20had%20been,during%20the%20Global%20Financial%20Crisis.</ref>, and has estimated that the level of reserves needed in an ample reserves regime is equivalent to the average level of reserves in December 2019 as a share of nominal GDP (NGDP), or 8 percent, about $2 trillion. <ref>https://www.newyorkfed.org/medialibrary/media/markets/omo/omo2021-pdf.pdf</ref> This means that debt issuance coming from reserves, will likely drain all remaining excess reserves available, leaving the finantial system fragile. | |||
== References == | == References == | ||