St. Louis Fed Warns of T-Bill Deluge Draining Bank Reserves

The St. Louis Fed warns that the deluge of Treasury bills being sold by the US Treasury could drain bank reserves and potentially disrupt the banking system. As the government suspended the debt ceiling, the Treasury has sold about $1 trillion of bills since June, and the cash to buy this debt can come from bank accounts or money market funds. If too much money comes from the banking system, lenders may face a shortage of reserves to meet regulatory requirements, forcing the Federal Reserve to halt its quantitative tightening program. However, if money drains out of money market funds, the impact on the financial system is expected to be manageable. The Treasury is estimated to issue another $600 billion of T-bills by year-end.