TGA increase has not affected liquidity in the banking system
Examining the latest data from the Federal Reserve H.4.1 report offers valuable insights into the developments surrounding the Treasury General Account (TGA). The report indicates a significant increase of $243.6 billion in the TGA, rising from $48.5 billion on May 31, 2023, to $292.1 billion on June 21, 2023. However, it is essential to note that this increase was nearly offset by a $217.8 billion decrease in the overnight Reverse Repo balance at the Fed during the same period, dropping from $2,254.9 billion to $2,037.1 billion. This tends to support the hypothesis that money market funds have been reducing overnight reverse repos with the Fed and using the money to buy Treasury bills.
In this process, the increase in the TGA balance has not affected liquidity in the banking system. In fact, US banks' reserves in the Federal Reserve system were almost unchanged at $3,204 billion on June 21, from $3,205.5 billion on May 31, countering concerns over liquidity drain.
Figure 3 and Figure 4 below illustrate the changes in the TGA balances, overnight reverse repo balances, and reserves held by banks at the Fed.