Fed reverse repurchase facility posts record $ 485.3 billion overnight demand from liquidity-flooded Wall Street

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Banks and other financial firms piled up on Thursday a record $ 485.33 billion in the Federal Reserve’s overnight reverse repo setup as Wall Street continues to wonder where to park all its money.

The Federal Reserve Bank of New York’s overnight repo program (RRP) was already reaching near-record demand last week, after hardly anyone had used it for months.

Now there is a new record for the facility which some see as an investment opportunity of last resort as it currently offers no return but also costs banks less to use than paying a deposit fee. higher to maintain liquidity internally.

Here’s a chart showing the use of the Fed’s daily reverse repo facility from 2014 to Wednesday.

Save the reverse repurchase agreement request

Federal Reserve Bank of New York

More emphasis has been placed on plumbing global financial markets since the 2008 financial crisis caused a credit crunch.

In September 2019, demand increased for another Fed short-term funding facility, amid a liquidity crunch as major financial powers, including JPMorgan Chase & Co. JPM,
+ 1.56%.
, said it stemmed in part from crisis-era banking regulations that made it more difficult for banks to expand their balance sheets.

Lately, demand for repo facilities has been monitored for signs that the US central bank could potentially lose its grip on benchmark lending rates, especially as the Fed has now been struggling with it for a long time to maintain its benchmarks. monetary policies as trillions of pandemic aid flow through markets, without pushing inflation and asset prices into overdrive.

Several factors have been blamed for the recent surge in the use of reverse repurchase agreements by the Fed, including a liquidity and collateral imbalance fueled by one-year and over bond purchases of $ 120 billion by the Fed. months of the Fed, known as quantitative easing.

See: Why demand for the Fed’s reverse repurchase facility is increasing again

The Fed, under President Jerome Powell, has bought about $ 2.5 trillion in bonds since the pandemic struck last year, through its monthly purchases of TMUBMUSD10Y U.S. Treasuries,
1.610%
and MBB agency mortgage bonds,
-0.14%

VMBS,
-0.09%.

The size of the central bank’s balance sheet currently sits at a record high of nearly $ 8 trillion, up from about $ 4.2 trillion before the pandemic outbreak.

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