Sunday, February 03, 2008

"Reserves"? You keep using that word.

I do not think it means what you think it means.

This comment on The Financial Ninja points out that the Fed has redefined how the NFORBRES data (net free or borrowed reserves) are calculated:

"Notes:  Prior to 2003-01-01, the data are calculated as excess reserves minus total borrowings plus extended borrowings.  From 2003-01-01 till 2007-11-01, the observations reflect excess reserves minus total borrowings plus secondary borrowings.  From 2007-12-01, the definition changes to excess reserves minus discount window borrowings plus secondary borrowings."

This would appear to mean that the proceeds of loans from the Fed's Term Auction Facility (TAF) are being accounted for as income to the banking system.  Before this change, the reserves graph had gone negative to the tune of over $10G.

Tick.  Tick.  Tick.

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