Excess Reserves And The New Challenges For Monetary Policy

In recent months, the level of total reserves held by Depository Institutions (DIs) in the United States has been consistently above $1 trillion. Of this, required reserves have been less than 7 percent. In the five years prior to September 2008, total reserves fluctuated between $38 billion and $56 billion, and required reserves fluctuated between 80 percent and 99 percent of total reserves. Hence, the recent level of reserves represents a dramatic change from previous experience. There has been much debate about the implications of high levels of reserves for the economy and how monetary policy is conducted.