Tuesday, May 13, 2008

Non-Borrowed Reserves and the Fed's Balance Sheet

by Bill McBride on 5/13/2008 02:55:00 PM

Here is a graph that is clogging up all those internet tubes:

Non-Borrowed Reserves Click on graph for larger image.

This graph, from the St. Louis Federal Reserve, shows the non-borrowed reserves of financial institutions. Looks like some serious cliff diving, but with a little research, we discover this graph is misleading.

The explanation is pretty simple. The Federal Reserve decided to classify the TAF and the primary dealer credit facility as borrowed reserves (see this table). If we back out these collateralized borrowings, you get the total reserves, and that has been very steady. False alarm.

Fed's Balance SheetA more interesting chart was present by Dr. Janet Yellen this morning showing the Fed's balance sheet.

This graph shows that about half the Fed's U.S. Treasuries have been committed to fight the liquidity crisis.