A rapid fall in bank reserves held at the Federal Reserve, coinciding with an expected shortage of U.S. Treasury bills as the debt ceiling battle looms, has raised concerns from investors about potential stress in financial markets.
Reserves, which are funds the Fed requires banks to hold as balances at the central bank, have fallen due to the impact of the central bank’s program to reduce its swollen balance sheet, known as quantitative tightening (QT). Bank deposits, which are part of reserves, also dropped with customers seeking higher-yielding alternatives for their cash.
Source : Decrease in U.S. bank reserves complicates contentious debt ceiling issue: Analysis