A stable and well-functioning tri-party repo market is critical to the health and stability of the U.S. financial markets and the U.S. economy for several reasons. The tri-party repo market
- creates market liquidity and price transparency for U.S. government and corporate securities that foster stable financing costs for U.S. companies and the U.S. government,
- is interconnected with other payment clearing and settlement services that are central to U.S. financial markets and are operated by the two tri-party agent banks, and
- serves as a critical source of funding for systemically important broker-dealers that make markets in U.S. government and corporate obligations.
To strengthen the resiliency of the tri-party repo infrastructure in stressed market conditions, the Federal Reserve looks to market participants to reduce reliance on intraday credit, make risk management practices more robust to a broad range of events, and take steps to reduce the risk that a dealer's default could prompt destabilizing fire sales of its collateral by its lenders.