Interest on Reserves and Arbitrage in Post-Crisis Money Markets Accessible Data

Figure 1: Evolution of selected rates from the inception of IOR.

Three time series are depicted: the effective federal funds rate in dashed grey, the ONRRP rate in solid blue, and the interest on reserves in dashed red. Both interest on reserves and the effective federal funds rate start at about 100 basis points in late 2008, and subsequently drop. The interest on reserves rate stays at 25 basis points, and the effective federal funds rate remains below 25 basis points until the first rate hike in late 2015. At that point, the interest on reserves increase by 25 basis points, followed by similar increases in the effective fed funds rate and ONRRP rate. Further rate hikes occur in 2016 and 2017. In the last data point displayed, the interest on reserves is 125 basis points, the effective fed funds rate is 116 basis points and the ONRRP rate is 100 basis points.

Note: Chart key identifies regions in order from top to bottom.

Source: FRBNY

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Figure 2: Reserve Balances and Unsecured Borrowing.

Description: the top-left panel shows the evolution of reserves held by FDIC-exempt banks in blue, FDIC-insured banks in red and other banks not captured in the empirical analysis in green. Throughout the sample, reserves are more or less equally split between FDCI-insured and –exempt banks. The top-right panel shows the evolution of borrowing in the federal funds market; the area in blue represents borrowing by FDIC- exempt banks while the area in red represents borrowing by FDIC-insured banks. The total fed funds borrowing volumes are more or less stable around $75 billion each day, with FDIC-insured banks borrowing about 15 percent of the total. In the bottom-left panel we display Eurodollar borrowing volumes. While the total volumes trended down from about $250 billion in mid-2015 to about $120 billion in mid-2017, the FDIC-insured banks quite consistently represent about 15% of the volumes. Finally, in the bottom-right panel we display daily issuance of certificates of deposits; most of the daily issuance comes from FDIC-exempt banks, and the total issuance each day fluctuates more or less between $15 billion and $30 billion.

Sources: Federal Reserve accounting system for reserve balances, FR2420 -- Report of Selected Money Market Rates for borrowing volumes.

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Last Update: March 01, 2018