Where is bank reserve cash generally held?

Discussion in 'Financial Futures' started by scriabinop23, Dec 4, 2007.

  1. A simple question for bankers or the more informed.

    Banks have reserve requirements for customer deposits of cash, etc.

    What are the rules and restrictions (simplified form please) for the use of this reserve cash? I assume most banks put it into risk free $$$: 90 day -> 30 yr US treasury AAA products.

    Better question: As banks are writing down their mortgage loan position holding losses, they are forced to increase their cash reserve holdings a la 'margin call' trading behavior. Assuming they get the cash they need, are they merely immediately reshuffling that new cash into long treasury and bill positions?

    Lastly, assuming this is true, would this result in a net increase in treasury buying, and would that likely have a sizeable impact on the market versus merely traditional investment flows of pensions, money managers (hedge funds, mut funds etc) ???

    I assume any experienced banker or professional bond manager/trader should be able to answer these questions pertaining the the structural character of these markets.