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   Aggregate Reserves of Depository Instutions and the Monetary Base - H.3 Current Release

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  About the Release  Archives: Annual Review of Break and Seasonal Factors for Reserves and the Monetary Base Prior to 2013, the historical data on reserves and the monetary base were  revised on an annual basis to reflect the annual review of seasonal and break  factors. Break factors removed discontinuities (or "breaks")  associated with regulatory changes in reserve requirements, such as the annual  indexation of the low reserve tranche and the reserve requirement exemption.1 Seasonal factors for required reserves and the surplus vault cash  component of the monetary base were then reestimated using the revised  break-adjusted data. The following section explains the now discontinued process  of adjusting for breaks caused by changes in reserve requirements.  All historical break-adjusted and seasonally  adjusted reserves and monetary base data have been archived and are available  through the Data Download Program. Procedures Used to Adjust for Breaks
  Caused by Changes in Reserve Requirements
 Changes in reserve requirements have been associated with: (1)
  regulatory actions affecting Regulations D, J, K, and M; (2) the
  transitional phase in of required reserves under the Monetary
  Control Act of 1980 (MCA); (3) the initial implementations of the
  low reserve tranche on transaction deposits pursuant to the MCA and
  the reserve requirement exemption pursuant to the Garn-St Germain
  Act of 1982, respectively; and (4) the annual indexation of the low
  reserve tranche and the reserve requirement exemption; the break
  adjustments for the indexation are performed with the method
  discussed in the next section. Adjustments for such breaks involve estimating the required
  reserves that would have prevailed in past reserve maintenance
  periods had the new reserve requirements been in effect. The
  procedure is as follows: For the reserve maintenance period in which a required reserve
  ratio is changed, required reserves are calculated according to both
  the old and the new ratios, respectively, for each of the weekly and
  quarterly respondents to the FR 2900 report. The calculated
  required reserves are then aggregated according to the following six
  entity types: large commercial banks, small commercial banks, thrift
  institutions, Edge Act and agreement corporations, U.S. branches and
  agencies of foreign banks, and all FR 2900 quarterly reporters. For
  data before 1991, the first two entity types are classified as
  member banks and nonmember banks. 
For each of the six entity types, the break adjustment factor is
  estimated as the ratio of "new" required reserves to
  "old" required reserves obtained from step 1. Actual
  required reserves for each entity type in all reserve maintenance
  periods before the change date are multiplied with that entity
  type's break-adjustment factor to get break-adjusted required
  reserves. 
Historical break-adjusted required reserves for each entity type
  are, therefore, the result of cumulative multiplications of actual
  required reserves by the break adjustment factors associated with
  the regulatory changes in reserve requirements between each date and
  the present. 
Aggregate break-adjusted required reserves against transaction
  deposits are the sum of break-adjusted required reserves against
  transaction deposits for each of the six entity types. Monthly data
  are pro rata averages of weekly or biweekly data. 
The required reserve ratio against nontransaction deposits was
  reduced to zero in December 1990. Therefore, break-adjusted
  required reserves against nontransaction deposits are equal to
  zero. 
Required clearing balances and adjustments to compensate for float
  are subtracted from the break-adjusted monetary base. 
Before the implementation of contemporaneous reserve requirements
  (CRR) in February 1984, required reserves on certain obligations of
  domestic affiliates and ineligible acceptances (finance bills) are
  excluded from break-adjusted reserves and the monetary base. Under
  CRR, the break-adjusted required reserves against transactions
  deposits include required reserves on certain obligations of
  domestic affiliates and on finance bills issued by the reporting
  institution that have an original maturity of less than seven days;
  these required reserves are no longer reported separately and are
  estimated to be very small.  Procedures Used to Adjust for Breaks
    Caused by Annual Indexation of the Low Reserve Tranche and the
    Reserve Requirement Exemption
 Break adjustments for annual indexation of the low reserve tranche
  and the reserve requirement exemption continue to employ the
  technique adopted in 1989. Unlike the break adjustments described
  above, break adjustments for the indexation are made to required
  reserves and to applied vault cash only in the maintenance
  periods between any two adjacent annual indexations. The break
  adjustment procedures for annual indexation of the low reserve
  tranche and the reserve requirement exemption are as follows: Using the method described in the previous section, break
  adjustment factors for each indexation are first estimated as ratios
  of required reserves (or applied vault cash) from micro data
  reported on the FR 2900 in the first effective maintenance period of
  the indexation; the estimation is based on the tranche and exemption
  levels after and before the indexation. Break adjustment factors
  for required reserves are derived for each of the six entity types
  described earlier. For applied vault cash, a break adjustment
  factor is derived for all weekly reporting depository
  institutions.2 
For maintenance periods between any two adjacent annual indexation
  dates, break factors are estimated under the assumption that the
  indexation is phased in at a constant growth rate throughout the
  year. Thus, break factors for these maintenance periods are
  produced by interpolating between 1.0 for the first effective
  maintenance period of the earlier indexation and the value of the
  break factor (calculated in the previous step) for the first
  effective period of the following indexation. Hence, break factors
  are equal to 1.0 for the first effective period of each
  indexation. To make 2012 data comparable with historical data, the break adjustments to
  the 2012 data use the low reserve tranche and the reserve requirement
  exemption that will take effect in January 2013. To  break adjust 2013 data, it is assumed that  the percent change in required reserves  (and applied vault cash) due to the indexation  effective January 2014 is the same as  that in January  2013.  Seasonal Adjustment Procedures
 Seasonal factors are estimated only for break-adjusted series.
  Excess reserves and borrowed reserves are neither break adjusted nor
  seasonally adjusted. For reserve maintenance periods before February 2, 1984, when old
  lagged reserve requirements (LRR) were in effect, seasonally
  adjusted aggregate required reserves consist of the sum of
  seasonally adjusted required reserves at member commercial banks and
  those at nonmember institutions. Seasonally adjusted total reserves
  are equal to excess reserves plus seasonally adjusted aggregate
  required reserves. Seasonally adjusted nonborrowed reserves consist
  of seasonally adjusted total reserves minus borrowed reserves. The
  monetary base, less excess reserves, is seasonally adjusted as a
  whole, rather than by component, and excess reserves are added
  without seasonal adjustment. Weekly seasonal factors are estimated
  from weekly time series models. Monthly levels of (both seasonally
  adjusted and not seasonally adjusted) reserves and the monetary base
  are derived as pro rata averages of the weekly levels. Beginning with the implementation of CRR on February 2, 1984,
  required reserves against net transaction deposits for all
  depository institutions are seasonally adjusted as a whole.
  Seasonally adjusted total reserves and nonborrowed reserves after
  CRR are constructed the same way as those before CRR. The
  seasonally adjusted monetary base is equal to the sum of three
  components: (1) seasonally adjusted total reserves (including excess
  reserves, which are not seasonally adjusted), (2) the seasonally
  adjusted currency component of M1, and (3) the seasonally adjusted
  surplus vault cash component of the monetary base. For the purpose of estimating seasonal factors, historical data for
  required reserves have been adjusted for a few events such as
  the September 11, 2001 terrorist attacks, that are believed to have
  distorted the seasonal patterns of deposits and required reserves.
  Such adjustments to required reserves are equal to the prevailing
  marginal required reserve ratio (10 percent since April 2, 1992)
  times the estimated effects on net transaction deposits in the
  corresponding computation periods in which deposits were
  adjusted. Effective July 30, 1998, the required reserve regime for weekly
  deposit reporters was shifted from CRR to new LRR, in which biweekly
  reserve maintenance periods lag their corresponding computation
  periods by thirty days.3  The
  shift to new LRR did not cause breaks in reserve data. However, the
  peaks and troughs of seasonal fluctuations for required reserves
  under new LRR lag those under CRR by four weeks. Previous seasonal
  reviews thus estimated seasonal factors for required reserves after
  the implementation of CRR (February 2, 1984) from two biweekly
  regression models: one for the entire CRR period (February 2, 1984
  through July 29, 1998) and another for the new LRR period (beginning
  July 30, 1998). Similarly, the length of the lag in counting vault cash toward
  required reserves for weekly reporters has been changed twice since
  February 1984. One was a shortening of the lag from thirty days to
  sixteen days, effective from November 12, 1992 through July 29,
  1998; the second was a lengthening of the lag from sixteen days to
  thirty days, beginning July 30, 1998. While these changes did not
  create breaks in the surplus vault cash component of the monetary
  base, they did affect seasonal patterns in this series. Previous
  seasonal reviews thus estimated seasonal factors for the surplus
  vault cash component of the monetary base after the implementation
  of CRR from three biweekly models: one for the period from February
  2, 1984 through November 11, 1992; the second for the period from
  November 12, 1992 through July 29, 1998; and the third for the new
  LRR regime (beginning July 30, 1998).    1. The Monetary Control Act of 1980 established a reserve ratio of 3
percent against the first $25 million in net transaction deposits
(low reserve tranche) at each depository institution. Since 1982, the
low reserve tranche has been indexed each January by 80 percent of the
previous year's (June 30 to June 30) growth rate of net transaction
deposits at all depository institutions. For more history on the changes to the low  reserve tranche and exemption amounts, see "Reserve Requirements" under  "Monetary Policy," available on this website. Return to text.  2. Break adjustment factors for applied vault cash were used to
compute the break-adjusted series for the surplus vault cash component
of the monetary base.Return to text.  3. The current regime is designated "new LRR" to distinguish it from
the regime of lagged reserve requirements that prevailed from
September 12, 1968 to February 1, 1984 (old LRR). Return to text.
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