Bank reserves held at the Fed fall below $3 trillion US Treasury bond issuance drains liquidity
2025-09-26 07:30:12
Liquidity in the US financial system has continued to dry up, with reserves in the banking system falling for seven straight weeks to below $3 trillion. The reserves are a key factor in the Federal Reserve's decision on whether to continue shrinking its balance sheet. Data released by the Fed on Thursday showed that bank reserves fell by about $21 billion to $2999.7 trillion in the week to September 24. This was the lowest level since the week to January 1. Behind this phenomenon is the US Treasury's increased issuance of debt to rebuild cash balances after the debt ceiling was raised in July. This drains liquidity from other Fed debt instruments, such as the overnight reverse repurchase agreement facility and bank reserves. But while the RRP balance is negligible, commercial banks' reserves at the Fed have been falling, and the cash assets held by foreign banks have fallen even faster than those held by US banks.
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