Fed Metric on Bank Reserves Gives Mixed Liquidity Sign
- Daylight overdrafts peak level higher for two quarters in row
- Wrightson said reluctant to draw conclusions from latest data
A key Federal Reserve indicator of scarcity of cash in the financial system is grabbing a lot of attention from market participants who are on the lookout for any evidence of stress.
Historically, the peak level of daylight overdrafts — when a bank withdraws more money than it has in its account at the Fed to make a payment – tends to move in the same direction as the average level. But last week’s reading showed the data points are no longer in sync: peak levels increased for the second quarter in a row, while the average level moved toward the low end of its recent range. While such a spike in peak daylight overdrafts is usually a warning sign of reserve scarcity, this time it may be different, according to Wrightson ICAP senior economist Lou Crandall.