The Federal Reserve’s 2023 Senior Financial Officer Survey results
provide insights into reserve balance management strategies, deposit pricing
and anticipated balance sheet changes among 100 banks, representing a wide
range of asset sizes and business models.
The most recent survey, conducted between Sept. 22 and Oct.
6, was a collaboration between the Federal Reserve Board and the Federal
Reserve Bank of New York and accounted for over three-quarters of the total
reserve balances within the U.S. financial system during the survey period.
Two-thirds of survey respondents indicated they expected the
size of their bank’s balance sheet to remain unchanged over the next six months.
Across 11 liability categories and six asset categories,
most respondents said they expected no significant changes in the next six
months. Retail deposits and wholesale operational deposits represent the liability
categories with the largest share of respondents reporting that their bank
plans to take action to increase or limit the decline in such liabilities.
When asked about their bank’s lowest comfortable level of
reserves (LCLOR) – the lowest reserve dollar level a bank would feel
comfortable holding before taking action – almost half of respondents reported
LCLOR estimates equal to, or within 10 percent of, their bank’s previously
reported level. The remaining
respondents were roughly split between increases larger than 10 percent and declines
greater than 10 percent.
“When asked about the factors that determine their bank’s
LCLOR, those most commonly rated as important or very important were satisfying
liquidity stress-testing metrics, meeting projected liquidity outflows, and
meeting intraday payment or settlement needs,” the report states. “Respondents
who reported that their bank prefers to hold reserves at a level above its
LCLOR, hereafter referred to as its additional reserves level, most commonly
rated satisfying liquidity stress-testing metrics and broader market conditions
as important or very important for holding additional reserves above their
LCLOR.”
About three-fourths of respondents said their bank does not
allow reserves to fluctuate below its LCLOR. Among the remaining respondents, three-fourths
said their bank prefers to hold additional reserves and does not allow fluctuations
below those additional reserve levels.
“Respondents who indicated that their bank would allow
fluctuations below their LCLOR were then asked about their bank’s tolerance for
the duration of the fluctuation,” the report states. “Almost all respondents
reported that their bank would take active steps to increase reserves within
five business days or sooner, with a slight plurality reporting the latter.”
Those indicating their bank would allow fluctuations below
their additional reserves level said their bank “would take active steps to
increase reserves within five business days.”
Respondents also were asked about their bank’s cumulative
deposit betas from March 2022 to September 2023, as well as its outlook for
cumulative deposit betas through March 2024.
“When asked about the rationale that most closely aligns
with their bank’s beta-setting strategy for retail deposits, respondents were
nearly evenly split between those indicating that betas will be set to increase
deposit balances and those indicating that betas will be set to maintain
deposit balances,” the report states. “On wholesale operational deposits and
wholesale non-operational deposits, a narrow majority of respondents indicated
that their bank will set betas to maintain deposit balances.”
The report also included several charts offering more
details about respondents’ answers to questions regarding their bank’s reserves
and balance sheet management practices and forward-looking expectations concerning
loans, deposits, repurchase agreements and more.