U.S. Bank Reserves Drop to Lowest Level Since 2020

According to Odaily, U.S. bank reserves have fallen to approximately $2.89 trillion as of the week ending January 1, marking the lowest level since October 2020. This represents a significant weekly decrease of about $326 billion, the largest in over two and a half years, as reported by the Federal Reserve on Thursday. The decline in reserves is attributed to banks reducing balance sheet activities, such as repurchase agreements, to meet regulatory requirements at the end of the year. This shift has led to increased cash flow into the Federal Reserve's overnight reverse repurchase (RRP) facility, drawing liquidity away from other liabilities on the Fed's balance sheet. During the period from December 20 to December 31, 2024, the RRP balance rose by $375 billion, before decreasing by $234 billion on Thursday. Concurrently, the Federal Reserve continues to remove excess cash from the financial system through its quantitative tightening (QT) program, while institutions repay loans from the bank term funding program.