The outflow in the quarter isn’t a problem for banks, which are sitting on more deposits than they want. Deposits in the banking system usually stay relatively stable, but swelled by some $5 trillion in the past two years due to pandemic stimulus. Now, a series of Federal Reserve rate increases is taking some of that money out of the system, in part by decreasing demand for loans and increasing demand for government bonds.
“I think we’re a lot closer to the floor in reserves than the consensus,” Mike Cloherty, the head of rates strategy at UBS, said at a panel discussion Friday hosted by the Bank Policy Institute.