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What level of reserves is truly “excessive”?

Summary:
As our FT colleagues wrote last week, people in the US are worried right that we are going to see another spike in the repo rate — that is the rate that US banks pay to borrow from one another, with collateral, overnight — as the year draws to a close.We have already seen a substantial spike in repo rates this year, such as back in September when the overnight rate jumped to just shy of 10 per cent. Bear in mind that at the time, the upper limit of the fed funds target range, which the repo rate tends to track, was 2.25 per cent. The reasons driving those fears are numerous. But we want to focus on one in particular here: the impact of the Fed’s attempts to squeeze some of its post-crisis liquidity out of the system. When the crisis struck and the Fed’s balance sheet ballooned, there was

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