The Federal Funds rate has exhibited regular drops at month ends since beginning of 2015.

enter image description here

(Source: FRED https://fred.stlouisfed.org/series/EFFR)

Some studies (e.g., https://www.mdpi.com/1911-8074/14/5/204/pdf) have pointed to window dressing by banks to boost their LCR in month-end reporting as reasons for this curious phenomenon.

Specifically, banks who wishes to improve their LCR on the last day of the month would decrease borrowing in the Federal Funds market. This reduces demand for loans, and pushes the interest rates down.

However, it appears that the pattern largely disappeared from mid 2018 to mid 2021, and is only recently making a comeback (see fig below zoomed in on 2021).

enter image description here

My question is: why did the the pattern disappear during this period? Were there any regulatory changes? Or was it due to some other market structural changes?

Bonus question:

I have also found this SE question (Fed Funds Rate - why has it just started decreasing on the final day of each month (vs quarter)) from 2015, with an answer suggesting further that only foreign banks report monthly, while US banks report daily.

Are there any official regulatory documents backing this claim (regarding the frequency of reporting)?

Any and all comments/insights are appreciated!

  • $\begingroup$ As the person who asked the 2015 question, I haven't been able to piece together a complete answer yet. I'm working through two sources of this microstructure noise: relevant reporting regimes (e.g. Fed FR Y-14, FFIEC 101, 031, 041, etc.) and Fed levers (asset purchases, interest on required and excess reserves, overnight repo returns, etc.). I'll add an answer as soon as I piece it all together. $\endgroup$
    – MikeRand
    Oct 9 '21 at 15:53

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