Payments
Quantitative Tightening increases the risk of a dollar funding squeeze. Delayed intraday payments to the largest dealer banks may act as an early-warning signal.
Abstract
We show that the likelihood of a liquidity crunch in wholesale US dollar funding markets is highly dependent on levels of reserve balances at the financial institutions that are the most active intermediaries of these markets. Heightened risk of an imminent liquidity crunch is signaled by significant delays in intra-day payments to these large financial institutions over the prior two weeks. Our study contributes to the broader dialogue surrounding the Federal Reserve’s ongoing quantitative tightening (QT).
