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New Repo tool by FED to affect the short-term lending markets

Posted on by aldopuch


Policy makers were briefed by Simon Potter, head of the markets group at the New York Fed, about establishing a “fixed-rate, full-allotment overnight reverse repo” facility. This would operate alongside the Fed’s existing reverse repo facility that is designed to drain the vast amounts of excess reserves from the financial system when official overnight rates start rising.

The new central bank tool for the day when a tightening of policy beckons, has the potential to change the fundamental structure of short-term lending markets; alleviate collateral scarcity; reinforce the push for simpler bank capital regulation; and approximate a Fed backstop for big swaths of US money markets.

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