The Federal Reserve Bank of New York on Tuesday added new limits to the conditions governing access to a widely used tool for managing short-term interest rates.
The bank said firms wishing to use its reverse repo facility should only request access if it is compatible with the firm’s existing business model, a move that appears to be aimed at cutting off access to investment entities created specifically to take advantage of the tool.
Access to the reverse repo facility “should be a natural extension of an existing business model, and the counterparty should not be organized for the purpose of accessing operations [de prise en pension]“, said the bank.
Money market funds which, in the opinion of the New York Fed, are organized for a single beneficial owner, or which bear sufficient similarity to a fund so organized, will generally be considered ineligible to access take-in transactions. in repo,” the bank said.
The New York Fed did not specify in its press release the reasons that led it to clarify the conditions of access of counterparties to reverse repurchase transactions. The last time the Fed released a statement about the repo tool was two years ago, when it clarified some of the requirements a company must meet to use the repo tool. pension.
The Fed’s reverse repo facility is one of two tools used by the central bank to keep the overnight federal funds rate, the main lever of monetary policy, at the level desired by the authorities.
The Fed is currently paying 4.9% to deposit-seeking banks to place their cash with the central bank, which sets the upper limit of the interest rate range.
The reverse repo facility, which currently stands at 4.8%, sets the lower limit of the range. The federal funds rate is currently pegged at 4.75% to 5% and is expected to rise by a quarter of a percentage point at next week’s monetary policy meeting.
The Fed’s reverse repo facility has seen a massive influx of liquidity since the spring of 2021, and since June eligible companies, which are mostly money market funds, have parked at least $2 trillion a day with from the Fed.
The influx of interest has been linked to the fact that the repo facility generally offers a better rate than private money market placements, making it safer and easier to park money at the central bank.
Fed officials have long said that as they raise rates and normalize monetary policy, they expect money to flow out of the repo facility. But that has yet to materially happen, and on Tuesday the tool received $2.275 billion.
The Fed has opposed other companies that have implemented operations that some see as specifically designed to take advantage of the monetary policy toolkit.
2023-04-26 04:05:34
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