May 2026
A Tale of Demand and Supply for Central Bank Reserves
Sriya Anbil, Sebastian Infante, Zeynep Senyuz
Abstract:
In an ample-reserves framework, administered rates anchor money markets but suppress information from unsecured interbank trading. We recover that information by isolating the small interbank segment of the federal funds market. Using high-frequency bank-level data, we employ deposit shocks as an instrument for bank borrowing demand. Our analysis reveals that non-bank lenders, such as Federal Home Loan Banks, supply funds elastically, whereas bank lenders exhibit price inelasticity, which intensifies as their reserve balances decline, particularly for bankers’ banks. This interbank segment highlights distributional frictions in the federal funds market that emerge well before aggregate reserves become scarce and provides new evidence on monetary policy transmission in an ample-reserves regime.
Keywords: monetary policy implementation, balance sheet policy, central bank reserves, fed funds market
DOI: https://doi.org/10.17016/FEDS.2026.028
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Last Update:
May 13, 2026
