Heres Why Us Banks Hoarding Liquidity

The persistence of high bank reserves in the US despite the Federal Reserve’s balance sheet reduction hints at underlying financial strains. Banks are hoarding cash, incurring higher costs to maintain liquidity due to substantial unrealized losses on bond portfolios. This cautious approach is fueled by recent bank failures and regulatory shifts, fostering a climate of financial insecurity. The situation raises concerns about the Federal Reserve’s quantitative tightening policy and suggests potential early termination of this strategy if financial stress intensifies. The declining use of the Fed’s reverse repo facility further underscores these mounting pressures in the banking sector.