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A tool for swelling reserves on hand

ECONOMIC RESEARCH DEPARTMENT  
A tool for swelling reserves on hand  
Concerned about reducing pressure in the money markets, the Federal Reserve (Fed) will proceed with outright securities  
purchases in addition to its repurchase agreement operations (repo). At the end of the year, between USD 365 bn and  
4
00 bn* in central bank money could thus be injected into the current accounts of banks.  
Given the current amount of the outstanding liquidity lent, the upward trend in currency in circulation and the foreseeable  
rebuilding of the Treasury account with the Fed, the banks’ reserves with the central bank are unlikely to increase by more  
than USD 130 bn by the end of the year (to a total of nearly USD 1600 bn, the April 2019 level).  
Yet these supplementary reserves could be smaller if the Fed maintains its generous reverse repo operations with foreign  
central banks. By restricting their scale, however, it would be able to free up space on its balance sheet for bank reserves.  
*
We assume the pace of securities purchases will be USD 15 bn per week. The lower end of the estimation range is based on the hypothesis that the current ceiling on  
repo operations will be maintained at USD 215 bn (USD 75 bn in overnight repos + 4 longer-term refinancing operations of USD 35 bn each), while the upper end is  
based on the assumption that in December, the ceiling on repo operations will be raised to the September level of USD 250 bn (USD 100 bn in overnight repos + 1  
longer-term refinancing operation of USD 30 bn + 2 longer-term refinancing operations of USD 60 bn each).  
economic-research.bnpparibas.com  
Céline Choulet  
23 October 2019  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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