News - Bill's Blog

They weren’t just running on toilet paper

March 23, 2020

The Federal Reserve Board of Governors publishes a weekly statistical report titled “Factors Affecting Reserve Balances.” The report provides an accounting for the aggregate supply and uses for depository institution reserves at the Fed – their own “bank accounts.”  The report also includes an aggregate balance sheet for the 12 Federal Reserve Banks, which now report total assets of nearly $5 trillion, as well as breakouts for balance sheets for the Reserve Banks individually. 

The Fed revised the presentation of the financial statements in the latest release of this report, dated March 19. That release disclosed the statement “has been modified to consolidate certain line items in table 5.” Modifications include the consolidation of amounts previously reported as “loans,” which includes discount window borrowing, into the line “Securities, unamortized premiums and discounts, repurchase items, and loans.” 

Table 5 in this report provides a balance sheet for each Federal Reserve Bank, and the Fed went on to explain that “This modification supports the Federal Reserve's goal, expressed in its statement on March 15, 2020, of encouraging depository institutions to use the discount window to help meet demands for credit from households and businesses, including needs related to the spread of the coronavirus.”

Previously, analysts could look at changes in the “Loans” line item at Reserve Banks and infer where large scale borrowing might be underway, including in which Reserve district. 

But this wasn’t the only line item that appears to have been modified.

Federal Reserve Notes – paper currency, like $1 and $100 bills – are presented as liabilities on Federal Reserve Bank balance sheets. Up until the latest reporting week, they had been presented net of the amounts “held” by individual Reserve banks – basically, vault cash.  

In the two weeks prior to the change in presentation, there was a sudden downdraft in notes “held” by the Reserve Banks – about $17 billion worth, much higher than the same weeks in recent years. This is consistent with a sudden new demand for cash – physical currency.

In the latest reporting week, you can’t see the change in notes “held” by the individual Reserve Banks, given the change in presentation. But you can see that amount for the Reserve Banks in total, in the very last table of the report, which summarizes collateralization requirements. After a $9 billion decline in the week ended March 5, and an $8 billion decline in the week ended March 12, the dollar amount of notes held by the Reserve Banks dropped $23 billion in the week ended March 19.




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