How TGA Balances Affect Bank Reserves
The Treasury General Account (TGA) is the U.S. government's primary checking account, held at the Federal Reserve. When the Treasury receives tax payments or issues new debt, the TGA balance rises — and bank reserves fall by an equivalent amount, because the money moves from commercial bank deposits to the Fed's balance sheet. When Treasury spends, the reverse occurs: TGA falls and reserves rise.
This means the TGA is a direct, dollar-for-dollar substitute for reserves in the banking system. A $100 billion increase in the TGA — for example, ahead of the quarterly tax date — destroys $100 billion of bank reserves. Banks must hold precautionary reserve buffers large enough to absorb these frequent, large, and partially unpredictable TGA swings without falling below their internal liquidity floors.
The Scale of TGA Volatility
TGA balances are highly volatile. During normal quarters, the TGA fluctuates by $100–300 billion around its target level due to the timing mismatch between tax receipts and government outlays. Around debt limit episodes — which have become increasingly frequent and prolonged — the TGA can swing by $500 billion or more over weeks as Treasury runs down the account to near zero before a limit increase allows issuance to resume. The Fed estimates that banks hold $50–200 billion in excess reserves specifically to buffer against TGA-driven reserve volatility.
The Policy Option: Modern TT&L Revival
The paper proposes a modernised version of the Treasury Tax & Loan (TT&L) programme, which operated from World War I through 2011. Under TT&L, Treasury held a portion of its cash at commercial banks rather than entirely at the Fed, reducing the reserve-destroying effect of large tax receipts. When Treasury received tax payments, they were deposited into TT&L note accounts at commercial banks, keeping reserves in the banking system until Treasury needed to spend.
A modernised version would work differently: the Federal Reserve would actively sterilise fluctuations in the Treasury General Account (TGA). When the TGA is expected to rise sharply (for example, during tax season), the Fed would offset the resulting reserve drain by purchasing short-term Treasury bills. The net effect is that increases in the TGA are counterbalanced by Federal Reserve operations, leaving aggregate bank reserves broadly stable. In this framework, reserve management becomes an explicit function of monetary policy operations, rather than being indirectly influenced by Treasury issuance decisions.
Estimate reflects reduction in precautionary buffers held to absorb TGA-driven reserve volatility. Effect conditional on Treasury's willingness to actively manage reserve impact — requires Fed-Treasury coordination.
Implementation Requirements
This option requires active coordination between the Fed and Treasury — specifically the Treasury's Bureau of the Fiscal Service and the Office of Debt Management. Treasury's primary objective in cash management is minimising borrowing costs and maintaining an adequate operating buffer, not managing reserve levels. Convincing Treasury to actively issue T-bills for reserve-sterilisation purposes — which may slightly increase borrowing costs relative to a larger TGA buffer — requires alignment of objectives between the two institutions.
The paper notes that the original TT&L programme was discontinued in 2011 partly because interest rate management on TT&L note accounts became administratively complex. A modern T-bill sterilisation approach avoids this complexity by using market instruments rather than special-purpose bank accounts.