Friday, May 1, 2009

Adjusting the bank is Reserve position

A rather careful adjustment in reserve position is called for when, as is usually the case for large city banks, the money desk manager seeks to keep a fully invested asset position without involving reserve deficits. It a deposit inflow supplies funds that are expected to be retained by the bank for a considerable period of time,such as several months,then it is to be expected that such short-term funds would enter a longer part of the money market than the federal funds market. Such funds would probably be invested in Treasury bills,or possibly commercial paper or banker' acceptances. Likewise,a persistent deposit drain will ordinarily be met by selling such securities from the investment portfolio of the bank. But when it seems likely that the increase,or decrease,in funds arising from changed levels of bank deposits is temporary in character,one might then reasonably expect the large bank to buy or sell federal funds.

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