Fed's Kaplan says US debt issuance top cause of reserves crunch

• The dramatic increase in Treasury issuance takes liquidity out of the system,"
• Post-financial-crisis regulation that forces banks to hold more reserves.

SAN FRANCISCO: Dallas Federal Reserve Bank President Robert Kaplan on Friday blamed US borrowing to fund a growing deficit for the liquidity crunch in overnight funding markets that the central bank earlier on Friday addressed with a new program to buy Treasury bills.

"The dramatic increase in Treasury issuance takes liquidity out of the system," Kaplan said at the Commonwealth Club. "That I think is at the top of the list for reasons we need more liquidity." The other reason, he said, is post-financial-crisis regulation that forces banks to hold more reserves.

Kaplan said the liquidity issue the Fed is addressing is not a sign of a bigger problem and the action the Fed is taking to address it is technical and separate from monetary policy.