Excess Reserves Continue to Build, Signalling Bank Caution

As we first wrote here, and updated in our daily dispatch here, bank reserves held at the Fed (to earn 0.25% interest) continue to rise, despite the ongoing money printing. Specifically, non-borrowed reserves are up $82.028 billion over the last two weeks, of which $78.190 billion is due to excess (not required) reserves. Over the same two week period, $57.214 billion in Treasury coupons were purchased by the NY Fed. Overall, a net drain of $24.814 billion.

We do note that the (likely permanent) wind down of the Treasury's Supplemental Financing Program, an account it holds at the Fed, is ongoing and is adding $25 billion per week of liquidity. However, we continue to view the banks' actions as very defensive.