Banks’ operating balances on deposit at Federal Reserve Banks have been declining over most of the past decade. Banks hold these balances for two reasons: as reserve balances that, along with vault cash, satisfy legal reserve requirements and as service-related balances that banks voluntarily contract to hold for handling interbank payments. (Balances other than these are relatively stable and low.) The decline in operating balances can be gauged roughly by the rapid increase in the ratio of nominal GDP to balances. In effect, more and more economic and financial interbank business is being transacted with a progressively smaller amount of central bank deposit money.
Suggested citation: "Operating Balances," Federal Reserve Bank of Cleveland, Economic Trends, no. 00-11, pp. 06, 11.01.2000.