On Wednesday, May 2, 2012, the Board of Governors of the Federal Reserve System discontinued the publication of their retail deposit sweeps data. The existing data will continue to be hosted on this website, however no new observations will be reported.
Since January 1994, hundreds of banks and other depository financial institutions have implemented automated computer programs that reduce their required reserves by analyzing customers' use of checkable deposits (demand deposits, ATS, NOW, and other checkable deposits) and "sweeping" such deposits into savings deposits (specifically, MMDA, or money market deposit accounts). Under the Federal Reserve's Regulation D, MMDA accounts are personal saving deposits and, hence, have a zero statutory reserve requirement. For a fuller description of sweep programs, see Richard Anderson and Robert Rasche, "Retail Sweep Programs and Bank Reserves, 1994-1999," Federal Reserve Bank of St. Louis Review, January/February 2001.
Some early sweep software operated over weekends. These programs reclassified transaction deposits as savings deposits (MMDA) just prior to the close of business on Friday and moved the funds back to the transactions account just prior to the opening of business on Monday. Because reserve requirements are computed on the daily close of business level of deposits, including Saturday and Sunday, doing so avoided (on average) more than 3/7 of the reserve requirement on these deposits (Friday, Saturday and Sunday, plus an occasional Monday holiday). Later software chooses an optimal strategy based on customer's payment patterns. A constraint is that the number of "transfers" (reclassifications) from MMDA to a checkable deposit must be six or less each month. (More than six and the MMDA is subject to reserve requirements as a transaction deposit.) Hence, all of a customer's funds must be reclassified as checkable deposits on the sixth transfer.
These 1990s "retail" sweep programs are not to be confused with the sweep programs initiated by banks during the 1960s and 1970s. In those programs, business demand deposits were swept overnight (typically) into non-deposit interest-earning assets such as repurchase agreements and money market mutual funds. Although these programs also reduced banks' required reserves, their primary intent was to allow firms to earn interest overnight on demand deposits because, under the Banking Acts of 1933 and 1935, banks are prohibited from paying explicit interest on such deposits.
Retail sweep programs have substantially distorted the growth of M1, total reserves and the monetary base, as Chairman Greenspan noted in his July 1995 Humphrey-Hawkins Act testimony to the Congress. (See "Monetary Policy Report to the Congress," Federal Reserve Bulletin, August 1995, pp. 772-3.) In the fall of 1995, the Board staff began releasing monthly data on the amount of newly initiated sweep programs to the public. On October 12, 1995, the Board of Governors' staff released the following statement:
"To avoid misinterpretation of monetary and reserves data on the part of the public, the Federal Reserve Board intends to release to the public information regarding sweeps from NOW accounts to MMDAs. On an historical basis, monthly estimates of the nationwide change in NOW accounts attributable to the implementation of sweeps during the month would be provided on request to any member of the public. No names of individual institutions, no specific dates and no disaggregation of the data by District or any other category will be provided. Rather, only a single national monthly average will be provided."
The data in this file are these estimates.
These data are the estimated cumulative daily-average effect of new sweep programs on the month-average level of the aggregate checkable deposits included in M1. For example, a sweep program that reclassifies $30 million of OCD as MMDA would reduce the average level of OCD for a 30-day month by $30 million if implemented on the first day of the month, $15 million if implemented on the 15th day, $10 million if implemented on the 20th day, etc. These calculations correspond to those used in published monetary and reserve aggregates based on averages of daily deposit data. (For general discussion of the reporting of deposit data and construction of monetary aggregates, see Richard Anderson and Kenneth Kavajecz, "A Historical Perspective on the Federal Reserve's Monetary Aggregates," and Kenneth Kavajecz, "The Evolution of the Federal Reserve's Monetary Aggregates: A Timeline," both in Federal Reserve Bank of St. Louis Review, March/April 1994.
Inferences regarding distortions to narrow monetary and reserve aggregates from these data should be made with caution. In particular, these are not the current amounts being swept, and no data are available regarding the aggregate volume of deposits currently affected by sweep programs. Depositories do not report to the Federal Reserve the size of their sweep programs. The MMDA used in the sweep are included with all other savings deposits in deposit reports filed the Federal Reserve. MMDA have been included with reported savings deposits since September 1991.
Estimates suggest that retail deposit sweep programs have reduced aggregate required reserves by about 10 percent of aggregate amount of deposits reclassified from transaction deposits to MMDA. Although sweep programs have been implemented in some smaller institutions subject to only a 3 percent marginal reserve requirement ratio, most programs have been implemented in larger depository institutions subject to a 10 percent marginal reserve requirement.
In the July 1995 Humphrey-Hawkins report on monetary policy, Federal Reserve Board staff noted that sweep programs "...this year..." had reduced OCD by about $12 billion and required reserves by about $1.2 billion. Based on a panel of 1231 larger banks likely sensitive to changes in reserve requirements, Anderson and Rasche (2001) estimated that sweep programs had reduced required reserves as of December 1999 by $34.1 billion. Because some banks could not, subsequent to implementing a sweep program, reduce their balances at Federal Reserve Banks by as much as the programs had reduced their required reserves, Anderson and Rasche estimated that banks' actual reserves had decreased only $25.8 billion. Note that sweep programs do not directly affect M2, since MMDA are included in M2. Sweep programs might indirectly affect M2 growth if they affect deposit offering rates paid on MMDA, OCD or other deposits.
The data reported here on the reduction in M1 due to the initiation of sweep programs are produced by staff of the Money and Reserves Projections Section, Division of Monetary Affairs, Board of Governors of the Federal Reserve System, Washington, D.C. They are reported here as a convenience. New data for each month will be available during the last week of the following month. Data for September, for example, are expected to be available during the last week of October. These data may understate initial amounts being swept. Depositories are not required to notify the Federal Reserve prior to beginning a sweep program and some may have started programs that have not been detected by Federal Reserve staff. The amount of any such undetected sweep activity, however, is likely small: The initiation of a sweep program of any importance sharply decreases a depository's reported checkable deposits and increases its reported savings deposits.
Richard Anderson and Robert Rasche, "Retail Sweep Programs and Bank Reserves, 1994-1999," Federal Reserve Bank of St. Louis Review, January/February 2001.
Richard Anderson and Kenneth Kavajecz, "A Historical Perspective on the Federal Reserve's Monetary Aggregates," Federal Reserve Bank of St. Louis Review, March/April 1994.
Kenneth Kavajecz, "The Evolution of the Federal Reserve's Monetary Aggregates: A Timeline," Federal Reserve Bank of St. Louis Review, March/April 1994.
May 30, 2002