MNI BRIEF: NY Fed's Logan Says Unclear If LCLoR Has Shifted

The Federal Reserve will be monitoring financial developments in coming months to better understand banks' desire for reserves and what level of reserves would be needed in the banking system more broadly as the central bank prepares to shrink its balance sheet later this year, the New York Fed's market chief Lorie Logan said Wednesday.

"It's possible that the experience of the pandemic may have influenced the way some banks think about their liquidity profiles, and maybe there were lessons learned during those early days," she said, when asked if the lowest comfortable level of reserves (LCLoR) has shifted since pre-pandemic times, suggesting firms could possibly have altered their thinking about reserves due to the discount window or due to the central bank's standing repo facility. "It's unclear at this point, and I think that's something we'll be learning in coming months, as banks start to think about the environment as reserves start to decline should the Committee begin to address balance sheet reduction."

The New York Fed staffer, who manages the Fed's System Open Market Account, also pushed back on questioning that the central bank's standing repo facility is stigmatized. "I really see no reason that the use of the SRF should be stigmatized," she said, noting that four banks are now counterparties, with more expected to be announced shortly.