The amount of reserves in the US banking system experienced its largest drop in two years as Americans paid their income tax bills. Bank reserves decreased from $3.62 trillion to $3.33 trillion in the week through April 17, a decline of $286 billion. This drop is the largest since the April 2022 tax deadline. The level of reserves is closely monitored by market participants and policymakers to assess liquidity and potential impacts on financial markets. As reserves approach a level estimated to be between $3 trillion and $3.25 trillion, the Federal Reserve may need to consider adjusting its balance-sheet unwind. While the current level of reserves is considered abundant, policymakers aim for a slightly lower level. The Fed may need to slow the pace of runoff soon to avoid volatility in overnight funding markets. However, having too many reserves can consume bank capital and hinder lending. In the past, a scarcity of reserves has caused problems, such as the volatility experienced in overnight funding markets in September 2019. [1bbb7f61]