Fed Adds $87.7 Billion To Financial System in Latest Repo Transactions
October 15 2019 - 9:49AM
Dow Jones News
By Micah Maidenberg
The Federal Reserve Bank of New York added $87.7 billion to the
financial system Tuesday, using the market for repurchase
agreements, or repo, to relieve funding pressure in money
markets.
Banks asked for $67.6 billion in overnight reserves, all of
which the Fed accepted, offering collateral in the form of Treasury
and mortgage securities.
In a separate operation, banks asked for $20.1 billion in 14-day
loans, all of which was accepted by the Fed, offering collateral in
the form of Treasury and mortgage securities.
In the repo market, borrowers seeking cash offer lenders
collateral in the form of safe securities -- frequently Treasury
bonds -- in exchange for a short-term loan. The term of these loans
can be as short as overnight.
When the Fed adds money to the financial system through the repo
market, it is acting as a lender. In typical repo market
transactions, lenders can include money-market mutual funds, banks
or hedge funds that are seeking to earn a slightly higher rate of
interest than what is available from holding very short-term
government securities. The borrowers are often banks, securities
firms or hedge funds that use the cash to finance positions in the
market.
Banks and hedge funds borrow or lend depending on their needs
and investment goals.
The Fed began offering repo loans last month after a shortage of
available cash in the financial system led repo rates to climb as
financial companies scrambled for overnight funding. The actions
marked the first time since the financial crisis that the Fed had
taken such actions.
The Fed also said Oct. 11 it would continue to lend in repo
markets through January of next year. It will initially offer at
least $35 billion of multiday repo operations, generally twice a
week. Overnight repo operations will take place daily, initially in
an offering amount of at least $75 billion per operation, the Fed
said.
(END) Dow Jones Newswires
October 15, 2019 09:34 ET (13:34 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.