The Federal Reserve Board published an analytical note on the unwind of retail sweep programs, which depository institutions used to reclassify customer funds from reservable transaction accounts to non-reservable savings accounts without changing customers’ access to funds. The note finds that after reserve requirements were effectively eliminated in March 2020, 175 depository institutions discontinued sweep programs between April 2020 and February 2026, reclassifying about USD 1.5 trillion from savings deposits to demand deposits. It estimates that a further USD 526 billion to USD 2.4 trillion could still be reclassified as remaining institutions end their programs. Using FR 2900 reporting data and institutions’ explanatory remarks, the note identifies 560 depository institutions that engaged in retail sweeping at some point from April 2020 to February 2026, of which 386 were still sweeping and 175 had stopped by February 2026. Large institutions accounted for most of the balances reclassified, and commercial banks represented more than 80 percent of both the institutions ending sweeps and the amounts reclassified. The note also says the unwind materially affects the composition of published U.S. monetary aggregates even though total M1 and M2 are unchanged. It estimates that USD 1.2 trillion of commercial-bank reclassifications explains about 25 percent of the USD 4.8 trillion increase in demand deposits adjusted over the period, while the same unwind accounts for USD 1.2 trillion of the USD 2.1 trillion decline in other liquid deposits. The Board note says the remaining reclassification is likely to be toward the upper end of its range because a number of large depository institutions have not yet discontinued their sweep programs. It adds that these changes will continue to affect statistical releases built from FR 2900 and Call Report data, including the H.6 monetary aggregates and the Z.1 flow of funds data.

Original source Back to tracker