The Fed Is Quietly Re-Measuring Money: Four Research Notes on Plumbing, Not Policy

The fed funds market is no longer a bank market

The classic picture of the federal funds market is of banks lending overnight reserves to one another. A new FEDS Note says that picture is outdated: the Federal Reserve shifted to an ample-reserves framework, and with reserves ample and rates anchored by administered floors, traditional interbank borrowing has declined sharply. In the note's words, 'the market appeared to serve mainly as an arbitrage venue for non-bank institutions.' m:…6831

For bankers this matters because the signals the fed funds market used to give have changed meaning. When the market was an interbank lending hub, stress in fed funds told you banks were hoarding. Now that the market is mostly an arbitrage venue for non-banks, reading it requires asking who is arbitraging what: the venue reflects rate-floor mechanics and non-bank flows more than bank-to-bank trust. This suggests liquidity desks should weight administered-rate expectations and non-bank positioning more heavily than old interbank-spread heuristics when interpreting overnight funding prints. m:…6831

Private credit enters the official ledger

The Fed is adding private credit to the Financial Accounts of the United States, the country's official map of financial flows. Fed researchers define private credit as privately negotiated loans to businesses originated by nonbank investment funds rather than traditional intermediaries such as banks, and note it has played an increasingly important role in funding middle-market businesses over the past decade. m:…2199

Measurement is the first step to supervision, and this is the Fed telling you private credit is too big to leave off the official books. For bank lenders, the implication is double-edged: official data will eventually make non-bank credit visible enough to compete with more transparently, and it will make the sector's cyclicality visible enough to be regulated against. Bankers pricing middle-market loans should expect clients to arrive with term sheets from non-bank funds that are now, statistically speaking, part of the financial system's formal anatomy. m:…2199

The Treasury's checking account is moving the Fed's balance sheet

Research published through the Philadelphia Fed finds that changes in Treasury cash-management practices after COVID increased the Fed's balance sheet by as much as 2 percentage points of nominal GDP. Once debt-ceiling noise from extraordinary measures is stripped out, the rise in the Treasury General Account is mostly driven by higher target balances, and the research warns that an effective sterilization program would require timely and accurate information at high frequencies. m:…1826

This is the fiscal-monetary seam where liquidity planning lives or dies. Treasury's cash buffer decisions are no longer small enough to ignore: they are now a measurable driver of reserves, and therefore of the funding environment banks operate in. Treasurers and ALCOs should treat TGA target-balance announcements as first-order inputs to short-term funding forecasts, because reserves drain and refill as Treasury moves its cash. m:…1826

The basis trade has stalled, and policymakers noticed

The Dallas Fed reports that basis trade activity, in which investors buy Treasuries and sell their futures, has recently plateaued. The plateau has generated policymaker attention, and the question under investigation is whether a deleveraging of Treasury holdings is affecting demand for short-term funding. m:…9667

Read these four notes together and a pattern emerges: the Fed's researchers are auditing every junction of the US money system — the overnight market, the credit data, the balance sheet, the arbitrage trades — because each junction is behaving differently than the textbooks say. For a banker, the near-term takeaway is operational rather than directional: funding assumptions built on the old plumbing need recalibration. Longer term, this suggests the Fed is building the measurement infrastructure that precedes any new regulatory perimeter around non-bank credit and Treasury market structure. m:…9667 m:…2199