Campus Units

Economics

Document Type

Article

Publication Version

Published Version

Publication Date

11-2008

Journal or Book Title

Journal of Financial Transformation

Issue

24

First Page or Article ID Number

105

Last Page

107

Abstract

In most countries, the cost of reserves intraday is very close to zero. Many central banks, including the European Central Bank (ECB), the Bank of England, or the Swiss National Bank allow collateralized intraday borrowing at no cost. In the U.S., banks are allowed to incur uncollateralized daylight overdrafts for which they incur a small fee2. In contrast, most countries rely on a positive marginal cost of overnight reserves for the implementation of their monetary policies. In the Euro Area, the cost is at least as large as the difference between the policy rate and the rate the ECB pays on reserves deposited by banks, which is 100 basis points. In the U.S., the cost corresponds to the Fed funds target, since the Fed does not pay interest on reserves.

Comments

This article is published as J. Bhattacharya, A. Martin and J. Haslag. Understanding the cost difference between intraday and overnight liquidity, Journal of Financial Transformation, 24, 105-107, 2008.

Rights

Works produced by employees of the U.S. Government as part of their official duties are not copyrighted within the U.S. The content of this document is not copyrighted.

Language

en

File Format

application/pdf

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