Federal Reserve Board releases results of survey of senior financial officers at banks about their strategies and practices for managing reserve balances

Following a survey among senior financial officers at banks about their strategies and practices for managing reserve balances between November 4, 2022 and November 18, 2022, the Board of Governors of the Federal Reserve System (FED) has now published the results. The survey helps the regulator to gain an understanding of „deposit pricing and behavior, bank liability management, the provision of financial services, and reserve management strategies and practices.“
The key findings are as follows:
– In times of rising interest rates, institutions are either lowering or keeping their reserve balances at previous levels. In fact, around 25% of banks reported that they are reducing the levels of reserves, while the majority of institutions reported their intention to keep similar levels to previous years (reserve balances are thereby measured as a share of total assets).
– Most banks expect the share of loans (as a share of total assets) to increase over the next six months.
– With respect to banks‘ lowest comfortable level of reserves (LCLOR), most institutions cited their liquidity management obligations as the key driver to determine LCLOR.
– There is a significant difference in the level of LCLOR of foreign and domestic institutions: while most foreign banks are keeping their LCLOR at previous levels, most US institutions announced an increase of 20% or more.
– Higher levels of lowest comfortable level of reserves (above required reserves) were typically held due to market volatility or capital outflow uncertainties.
– As far as deposits are concerned, many banks showed themselves highly concerned about losing deposits due to competitive pressures (around 1/3 in both the retail and wholesale market).
For more information, please refer to the final report that was published by the FED and which is attached to this Event.