Fed Launches Foreign, Domestic Standing Repo Facilities

Fed Launches Foreign, Domestic Standing Repo Facilities

As was heavily hinted at in the June FOMC Minutes, moments ago in addition to its slightly dovish FOMC statement, the NY Fed unveiled that at long last it was establishing two standing repo facilities: one for domestic counterparties, and one for foreign and international monetary authorities (FIMA repo facility).

The domestic Standing Repo Facility will have a minimum bid rate of 0.25 percent and with an aggregate operation limit of $500 billion, and will be cleared and settled on the tri-party repo platform. This is largely a replica of the existing repo facility.

More importantly, the Fed is also launching an foreign overnight repo facility which will offer overnight repo at a rate of 0.25% to foreign central bank and international accounts against their holdings of Treasury securities maintained in custody at the New York Fed, subject to a per-counterparty limit of $60 billion.

As the NY Fed adds, these facilities will serve as backstops in money markets to support the effective implementation of monetary policy and smooth market functioning. In other words, going forward any institutions that face a funding shortage can pledge whatever collateral they have with the Fed and receive liquidity instantly. This should substantially eliminate the risk of significant dollar funding crises in the future.

More details from the New York Fed:

Standing Repo Facility

Under the SRF, the FOMC directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to conduct overnight repo operations with a minimum bid rate of 0.25 percent and with an aggregate operation limit of $500 billion, effective July 29, 2021. As with the Desk’s existing repo operations, the SRF will be cleared and settled on the tri-party repo platform. Treasury, agency debt, and agency mortgage-backed securities will continue to be accepted. All other terms will be the same as the existing overnight repo operations.

Primary dealers will continue to be counterparties for repo operations under the SRF. The SRF counterparties will be expanded to include additional depository institutions. Initially, criteria will be established to effectively manage onboarding of interested depository institutions. Consistent with the New York Fed’s commitment to ensuring its counterparty policies promote a fair and competitive marketplace, these criteria will be adjusted over time to expand depository institution eligibility. The initial criteria will allow depository institutions with holdings of Treasury, agency debt, and agency mortgage-backed securities greater than $5 billion as of June 30, 2021 or with total assets greater than $30 billion to express interest starting on October 1, 2021. All counterparties must be able to transact on the tri-party repo platform.

Additional information on the SRF can be found at the Repo and Reverse Repo Agreements page or in Frequently Asked Questions.

FIMA Repo Facility

Under the FIMA repo facility, the FOMC directed the Desk to offer overnight repo transactions at a rate of 0.25 percent to foreign central bank and international accounts against their holdings of Treasury securities maintained in custody at the New York Fed, subject to a per-counterparty limit of $60 billion. Eligible counterparties are foreign official institutions with custody accounts at the New York Fed that have been approved by the Foreign Currency Subcommittee of the FOMC.

Tyler Durden
Wed, 07/28/2021 – 14:15

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