Repo and Reverse Repo Agreements

The New York Fed’s Open Market Trading Desk (the Desk) is authorized by the Federal Open Market Committee (FOMC) to conduct repurchase agreement (repo) and reverse repo transactions. These open market operations support effective monetary policy implementation and smooth market functioning by helping maintain the federal funds (fed funds) rate within the FOMC’s target range.

Repos are a common secured money market transaction. In a repo transaction, the Desk purchases securities from a counterparty subject to an agreement to resell the securities at a later date. Each repo transaction is economically similar to a loan collateralized by securities, and temporarily increases the supply of reserve balances in the banking system.

Conversely, in a reverse repo transaction, the Desk sells securities to a counterparty subject to an agreement to repurchase the securities at a later date. Reverse repo transactions temporarily reduce the supply of reserve balances in the banking system.

To support its policy objectives, the FOMC has established repo and reverse repo facilities. The Overnight Reverse Repo Facility (ON RRP) helps provide a floor under overnight interest rates by acting as an alternative investment for a broad base of money market investors when rates fall below the interest on reserve balances (IORB) rate. The Standing Repo Facility (SRF) serves as a backstop to dampen upward interest rate pressures that can occasionally emerge in overnight U.S. dollar funding markets and spillover into the fed funds market. The Desk generally conducts both the ON RRP and SRF operations each business day.

The Desk can also conduct unscheduled repo operations as needed to maintain the fed funds rate within the target range, in accordance with the FOMC’s directive.

In addition to these operations, the New York Fed executes repo and reverse repo transactions with its foreign and international monetary authorities (FIMA) customers. Additional information on pooled foreign overnight reverse repo transactions and the standing FIMA Repo Facility is available here.

Overnight Reverse Repo Facility

The Federal Reserve manages overnight interest rates by setting the interest on reserve balances (IORB) rate, which is the rate paid to depository institutions on balances maintained at Federal Reserve Banks. The ON RRP provides a floor under overnight interest rates by offering a broad range of financial institutions that are ineligible to earn IORB, an alternative risk-free investment option. Together, the IORB rate and the ON RRP set a floor under overnight rates, beneath which banks and non-bank financial institutions should be unwilling to invest funds in private markets.

The Desk conducts ON RRP operations at a pre-announced offering rate set by the FOMC. The Desk offers U.S. Treasury securities held in the System Open Market Account (SOMA) portfolio to settle ON RRP transactions. A wide range of counterparties—primary dealers, banks, money market mutual funds, and government sponsored enterprises—are eligible to participate in the ON RRP. Each counterparty can invest funds in the ON RRP up to the per-counterparty limit. More information on the ON RRP can be found in Frequently Asked Questions. Information on the primary dealers is available here. Information on the expanded RRP counterparties is available here. Information on the results of the Desk’s RRP operations is available here.

Standing Repo Facility

In July 2021, the FOMC established a Standing Repo Facility (SRF) to serve as a backstop in money markets to support the effective implementation and transmission of monetary policy and smooth market functioning. The SRF is designed to dampen upward pressures in repo markets that may spillover to the fed funds market. In the FOMC’s ample reserve regime for monetary policy implementation, the SRF is not expected to be utilized frequently.

The Desk conducts overnight repo operations under the SRF each business day at a pre-announced bid rate set by the FOMC. Treasury, agency debt, and agency mortgage-backed securities are eligible to settle repo transactions under the SRF. More information on the SRF can be found in Frequently Asked Questions. Information on the results of the Desk’s repo operations is available here.

Primary dealers are counterparties to the SRF and depository institutions will be added as counterparties beginning in the fourth quarter of 2021.

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