On This PageAugust, No. 253
This article examines the evolution of retail sweep programs at banks throughout the Seventh Federal Reserve District. Such programs help banks reduce their reserve requirements, freeing up funds for investment.

Sweep Activity: Managing Bank Reserves in the Seventh District
Last Updated: 07/17/08
The U.S. Federal Reserve System imposes reserve requirements on banks and other depository institutions. Reserve requirements perform a critical support function in the financial system. They help ensure a stable, predictable demand for reserves, which in turn enables the Federal Reserve to achieve policy objectives by controlling the supply of reserves. However, this comes at a cost. If banks do not have enough cash in their vaults to satisfy reserve requirements, calculated as a percentage of specified deposit liabilities, they must hold additional non-interest-bearing reserves on deposit at the Federal Reserve. As such, reserve requirements represent an implicit tax on deposits, since funds held to satisfy these requirements cannot be allocated to interest-bearing assets.