Bank reserves held at the Federal Reserve fall below $3 trillion as the U.S. Treasury issues bonds to drain liquidity

Jinse Finance reported that liquidity within the US financial system continues to dry up, with bank system reserves declining for seven consecutive weeks, falling below $3 trillion. These reserves are a key factor for the Federal Reserve in deciding whether to continue shrinking its balance sheet. Data released by the Federal Reserve on Thursday showed that as of the week ending September 24, bank reserves decreased by approximately $21 billion, to $2.9997 trillion. This is the lowest level since the week ending January 1. Behind this phenomenon is the US Treasury ramping up bond issuance after the debt ceiling was raised in July, in order to rebuild its cash balance. This has drained liquidity from other Federal Reserve debt instruments, such as the overnight reverse repurchase agreement (RRP) tool and bank reserves. However, as RRP balances have become negligible, the reserves that commercial banks hold at the Federal Reserve have continued to decline. The cash assets held by foreign banks are decreasing even faster than those held by US banks.