Sunday, July 5, 2009

Adjusting the bank's 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 manger seeks to keep a fully invested asset position without involving reserve deficits.if 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 bankers' 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 fund a rising 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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