Bank Reserves

Think of it this way

It is the balance in the banks' checking account. You can own a house worth a fortune, but if you have no balance on Friday, you do not pay salaries. A bank works the same way: what it owns is of no use if it does not have it available.

What is Bank Reserves?

These are the liquid reserves that commercial banks keep on deposit at the Federal Reserve. They are not a calculation or an estimate: it is the exact balance of specific accounts, published every week. It is the figure large trading desks follow most: it tells you exactly how much money is ready to be invested, without depending on any interpretation.

How to read Bank Reserves

Weekly line. Here the absolute level matters more than the slope: below about 2.8 or 3 trillion the system starts to show signs of scarcity, which is when strains appear in repo rates. With the version switch you can add the immediate buffers —the money in the RRP and the Fed's outstanding repos— which is not in banks but can come back in a single day. The difference between the two lines is exactly the size of the remaining cushion. Lag: none, or +15 days at most: the cash is already in the accounts.

What Bank Reserves means for the market

It is the real constraint on everything else. A market can rise while the Fed's balance sheet shrinks, but it struggles to rise if reserves are running out: when they are scarce, banks prioritize settling their own payments over funding anyone's positions. The two funding stress episodes of recent decades —September 2019 and March 2020— came with reserves at relative lows.

Where the money flows

This money almost never leaves the system: it circulates within it. When you pay by card, your bank ends up owing the merchant's bank, and that debt is settled by moving reserves from one account to another inside the Fed. That is why the total only changes in four ways: the Fed creates or destroys money, the Treasury fills or empties its account, money market funds park cash in the RRP, or people withdraw banknotes from ATMs. Example: on the day taxes are due, thousands of companies transfer money to the IRS and these accounts drop sharply.

What to watch in Bank Reserves

Here the level matters more than the slope, unlike the rest of the section. The references that do not age: the low since 2018 was 1,394 billion, and below about 2,800 the system has historically started to show signs of scarcity. Place the latest reading on the chart against those. The check to make when reserves approach that zone is to look at the Cash Scarcity SOFR - IORB chart: if reserves fall AND that spread rises at the same time, the scarcity is no longer theoretical.

The hard cash banks have available today. It is the figure large trading desks watch most.