Federal funds

Short description: Overnight borrowings between US banks

This page is about funds maintained by the U.S. Federal Reserve. For the funds provided by the U.S. government in terms of aid and assistance, see Administration of federal assistance in the United States.

Main article: Finance:Federal Reserve System

In the United States, federal funds are overnight borrowings between banks and other entities to maintain their bank reserves at the Federal Reserve. Banks keep reserves at Federal Reserve Banks to meet their reserve requirements and to clear financial transactions. Transactions in the federal funds market enable depository institutions with reserve balances in excess of reserve requirements to lend reserves to institutions with reserve deficiencies. These loans are usually made for one day only, that is, "overnight". The interest rate at which these transactions occur is called the federal funds rate. Federal funds are not collateralized; like eurodollars, they are an unsecured interbank loan.[1]

Federal funds transactions by regulated financial institutions neither increase nor decrease total reserves in the banking system as a whole, instead, they redistribute reserves.[2] Before 2008, this meant that otherwise idle funds could yield a return. (Since 2008, the Fed has paid interest on bank reserves,[3] including excess reserves.) Banks may borrow these funds in order to meet the reserves required to back their deposits. Federal funds are definitive money, meaning that they are available for immediate spending, while checks and many other forms of money must be cleared by banks and typically take several days before becoming available for spending.

Participants in the federal funds market include commercial banks, savings and loan associations, government-sponsored enterprises, branches of foreign banks in the United States, federal agencies, and securities firms. Many relatively small institutions that accumulate reserves in excess of their requirements lend reserves overnight to money centers and large regional banks, as well as to foreign banks operating in the United States. Federal agencies also lend idle funds in the federal funds market.

The Fed, which is the central bank of the United States, conducts monetary policy primarily by targeting a certain value for the federal funds rate. If the Fed wishes to move to, for example, a more expansionary monetary policy, it conducts open market operations, which include primarily bank reserves; since this puts more liquidity into the banking system, it pushes down the federal funds rate.

## See also

* Arbitrage
* Discount rate
* Opportunity cost
* LIBOR
* Repurchase agreement

## References

1. ↑ Discount Window vs. Fed Funds
2. ↑ Bermejo Carbonell, Jorge; Werner, Richard A. (2018). "Does Foreign Direct Investment Generate Economic Growth? A New Empirical Approach Applied to Spain". Economic Geography 94 (4): 425–456. doi:10.1080/00130095.2017.1393312.
3. ↑ http://www.federalreserve.gov/monetarypolicy/20081006a.htm interest on reserves

## External links

* Federal Funds - Fedpoints - Federal Reserve Bank of New York
* Instruments of the Money Market: See Chapter 2 - Federal Funds

* v
* t
* e

Federal Reserve System

* Federal Open Market Committee (FOMC)
* Chair
* Governors
* Federal Reserve Bank

Banknotes|

* Federal Reserve Note
* Federal Reserve Bank Note

Reports|

* Beige Book
* Federal Reserve Statistical Release
* Monetary Policy Report to the Congress
* Fedspeak

Federal funds|

* Discount window
* Federal funds
* Federal funds rate
* Primary dealer

History|

| Antecedents|

* Bank of Amsterdam (1614–1667)
* Bank of England (1694–1776)
* Currency Acts (1751; 1764)
* Second Continental Congress (1776–1781)
* Bank of North America (1781–1791)
* First Bank of the United States (1791–1811)
* Coinage Act of 1792
* Second Bank of the United States (1816–1836)
* Suffolk Bank (1818–1858)
* Suffolk System (1824–1858)
* Bank War (1832–1836)
* Coinage Act of 1834
* Independent U.S. Treasury (1846–1913)
* Coinage Act of 1849
* Coinage Act of 1853
* New York Clearing House Association (1853–1863)
* Coinage Act of 1857
* National Bank Acts (1863; 1864)
* Coinage Act of 1864
* Contraction Act of 1866
* Public Credit Act of 1869
* Currency Act of 1870
* Coinage Act of 1873
* Specie Payment Resumption Act (1875)
* Bland–Allison Act (1878)
* Sherman Silver Purchase Act (1890)
* Gold Standard Act (1900)
* Aldrich–Vreeland Act (1908)

|

Official|

* Federal Reserve Act (1913)
* Pittman Act (1918)
* Post–World War I recession (1918–1919)
* 1920–21 depression
* Roaring Twenties (1921–1929)
* Wall Street Crash of 1929
* Great Depression (1929–1933)
* Panic of 1930
* Gold Reserve Act (1934)
* 1937–38 recession
* Bretton Woods system (1944–1971)
* Post–World War II economic expansion (1945–1973)
* Employment Act of 1946
* 1949 recession
* U.S. Treasury Department Accord (1951)
* 1953 recession
* Bank Holding Company Act (1956)
* 1958 recession
* 1960–61 recession
* FOMC actions (1961–Present)
* Kennedy Slide of 1962
* 1969–70 recession
* Nixon shock (1971)
* Smithsonian Agreement (1971)
* 1973–74 stock market crash
* 1973–75 recession
* Federal Reserve Reform Act (1977)
* Humphrey–Hawkins Full Employment Act (1978)
* Early 1980s recession (1980; 1981–1982)
* DIDMC Act (1980)
* Federal Reserve v. Investment Co. Institute (1981)
* Great Moderation (1982–2007)
* Northeast Bancorp v. Federal Reserve (1985)
* Savings and loan crisis (1986–1995)
* Black Monday (1987)
* FIRRE Act (1989)
* Friday the 13th mini-crash (1989)
* Early 1990s recession (1990–1991)
* FDIC Improvement Act (1991)
* 1990s U.S. economic expansion (1991–2001)
* Dot-com bubble (1994–2004)
* 1997 mini-crash
* Gramm–Leach–Bliley Act (1999)
* Early 2000s recession (2001)
* 9/11 stock market crash (2001)
* 2002 stock market downturn
* U.S. housing market correction (2006–2007)
* 2007–2008 financial crisis
* 2007–2009 U.S. bear market
* Great Recession (2007–2009)
* Subprime mortgage crisis responses (2007–2010)
* Bloomberg v. Federal Reserve (2009)
* 2010 Flash Crash
* August 2011 stock markets fall
* 2015–16 stock market selloff

Chairs|

* Charles S. Hamlin (1914–1916)
* William P. G. Harding (1916–1922)
* Daniel R. Crissinger (1923–1927)
* Roy A. Young (1927–1930)
* Eugene Meyer (1930–1933)
* Eugene R. Black (1933–1934)
* Marriner S. Eccles (1934–1948)
* Thomas B. McCabe (1948–1951)
* William M. Martin (1951–1970)
* Arthur F. Burns (1970–1978)
* G. William Miller (1978–1979)
* Paul Volcker (1979–1987)
* Alan Greenspan (1987–2006)
* Ben Bernanke (2006–2014)
* Janet Yellen (2014–2018)
* Jerome Powell (2018–)

Current
governors|

* Jerome Powell (Chairman)
* Richard Clarida (Vice Chairman)
* Randal Quarles (Vice Chairman for Supervision)
* Lael Brainard
* Michelle Bowman
* 2 seats vacant

Current
presidents|

* Eric S. Rosengren (Boston)
* John C. Williams (New York)
* Patrick T. Harker (Philadelphia)
* Loretta J. Mester (Cleveland)
* Thomas Barkin (Richmond)
* Raphael Bostic (Atlanta)
* Charles L. Evans (Chicago)
* James B. Bullard (St. Louis)
* Neel Kashkari (Minneapolis)
* Esther George (Kansas City)
* Robert Steven Kaplan (Dallas)
* Mary C. Daly (San Francisco)

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