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Republic Research / ARTICLE

Two weeks ago the Fed stopped buying $40 billion a month of Treasury bills. That program ran from December to keep bank reserves cushioned through tax season. It was built for weeks like the one coming up, and it ended before the week arrived. Circle Tuesday, September 15. That's the corporate tax extension deadline. Businesses that filed for an extension in the spring have to pay on the 15th, and so does anyone making a third-quarter estimated payment. That money leaves the banking system and goes into the Treasury's account at the Fed, and bank reserves fall by whatever gets paid. The same morning, dealers have to fund about $119 billion of new 3-, 10- and 30-year Treasuries. There's a 20-year auction that afternoon. The Fed opens its two-day meeting the same day. Triple witching is that Friday. The Bank of Japan decides the day after the Fed does. So the banking system has less cash and more paper to finance on the same day. This happened before, in September 2019. Corporate tax payments and a Treasury settlement hit the same week, and the overnight lending rate between banks went from 2.4% to 10% in a single morning. The Fed created a permanent lending facility because of that day. Banks borrowed $29.4 billion from it on October 31 and a record $74.6 billion on New Year's Eve, when reserves had fallen to $2.8 trillion. A repeat of 2019 is unlikely. Reserves are near $2.9 trillion and the facility works. The problem is what it looks like if a few banks have to borrow $10 or $20 billion from the Fed on the same day the Fed raises rates a quarter point. That's a bad headline for the banks, and bank stocks trade on the headline before anyone reads the details. Two things to watch. The gap between the overnight rate and fed funds, which is where 2019 showed up first. And FAZ, which is sitting on its 20-day. Above the 50-day is where bank trouble has started in the past. Don't be long the regional banks going into the 15th. Holding cash into that week is a reasonable position.

Published Sep 08, 2026Updated Sep 08, 20265 min read
Two weeks ago the Fed stopped buying $40 billion a month of Treasury bills. That program ran from December to keep bank reserves cushioned through tax season. It was built for weeks like the one coming up, and it ended before the week arrived. Circle Tuesday, September 15. That's the corporate tax extension deadline. Businesses that filed for an extension in the spring have to pay on the 15th, and so does anyone making a third-quarter estimated payment. That money leaves the banking system and goes into the Treasury's account at the Fed, and bank reserves fall by whatever gets paid. The same morning, dealers have to fund about $119 billion of new 3-, 10- and 30-year Treasuries. There's a 20-year auction that afternoon. The Fed opens its two-day meeting the same day. Triple witching is that Friday. The Bank of Japan decides the day after the Fed does. So the banking system has less cash and more paper to finance on the same day. This happened before, in September 2019. Corporate tax payments and a Treasury settlement hit the same week, and the overnight lending rate between banks went from 2.4% to 10% in a single morning. The Fed created a permanent lending facility because of that day. Banks borrowed $29.4 billion from it on October 31 and a record $74.6 billion on New Year's Eve, when reserves had fallen to $2.8 trillion. A repeat of 2019 is unlikely. Reserves are near $2.9 trillion and the facility works. The problem is what it looks like if a few banks have to borrow $10 or $20 billion from the Fed on the same day the Fed raises rates a quarter point. That's a bad headline for the banks, and bank stocks trade on the headline before anyone reads the details. Two things to watch. The gap between the overnight rate and fed funds, which is where 2019 showed up first. And FAZ, which is sitting on its 20-day. Above the 50-day is where bank trouble has started in the past. Don't be long the regional banks going into the 15th. Holding cash into that week is a reasonable position.