How many times to you see a chart like this one?

It looks very odd doesn't it. So what exactly is this chart measuring?

First, we need to understand what are excess reserves. It is the amount of money that commercial banks give to the Fed in excess of required reserves. Normally, banks are required to keep some minimum balances at the Fed, which are understandably called required reserves. Or to put it more simply, excess reserves is the cash that banks give to the Fed for safe keeping when they can't think of anything else to do with it.

The chart goes all the way back to the great depression. As you can see, banks back then stored a lot of idle money with the Fed. That was because they didn't want to lend it to anyone because the economy was doing so badly.

We can also see the aftermath of 9-11, when excess reserves shot up for a short period. It then returned to more normal levels.

In September this year, the level of excess reserves exploded. It went from less than $2 billion in August to $60 billion. Presumably, banks preferred to park their cash in the Fed rather than risk it anywhere else.

These are strange days.