Part 4/10:
Another vital point often discussed is the relationship between bank reserves and liquidity. Experts broadly agree that higher bank reserves equate to increased liquidity, while lower reserves lead to the opposite effect. Considering that the repo market blowup in September 2019 was attributed to a liquidity crunch, the current scenario raises similar alarms. With the Fed engaged in quantitative tightening—allowing treasuries to mature without replacing them—there's a growing concern that overall liquidity could be drained from the system.