The U.S. banking system is facing a significant liquidity crunch, contributing to the Federal Reserve’s decision to pause its balance sheet reduction program. According to recent data released by the Federal Reserve, bank reserves fell sharply in the week ending October 22nd, dropping to $2.93 trillion – the lowest level since January of this year. This decline is largely attributed to the government’s aggressive debt issuance following the July debt ceiling increase. As the Treasury sought to replenish its cash balance, it drained liquidity from various components of the Federal Reserve’s balance sheet, including the overnight reverse repurchase agreement (ON-RRP) tool and bank reserves.