2 This possibility arises because first, the ability of traders to provide market liquidity depends on the amount of funding they have and, second, the amount of funding they have, through capital and margin loans, depends on market liquidity. This second linkage arises because, with mark-to-market accounting, asset-price movements affect capital and because, empirically, margins tend to rise when asset prices fall.
Second, banks told us they want to be able to ensure they have adequate funds in their Federal Reserve accounts on a 24x7x365 basis to cover outflows related to instant payments,  -6-  especially during hours when existing payment services are not open and funds cannot be transferred into Federal Reserve accounts to cover intraday overdrafts.