Two new standing repurchase agreement (repo) facilities – a domestic standing repo facility (SRF) and a repo facility for foreign and international monetary authorities (FIMA repo facility) – were created by the Federal Reserve’s monetary policy setting arm this week to act as backstops in money markets to support monetary policy and smooth market functioning.
In a statement Wednesday, the Fed said it will conduct daily overnight repo operations against Treasury securities, agency debt securities, and agency mortgage-backed securities under the SRF, with a maximum aggregate operation size of $500 billion. The minimum bid rate for repos under the facility will be set initially at 25 basis points (bp), which the Fed said is somewhat above the general level of overnight interest rates. Counterparties for this facility will include primary dealers and will be expanded over time to include additional depository institutions.
The Fed said the SRF, as a backstop, “addresses pressures in overnight funding markets that could spill over to the federal funds markets and impair the implementation and transmission of monetary policy.”
Under the FIMA repo facility, the Federal Reserve will enter into overnight repurchase agreements as needed with foreign official institutions against their holdings of Treasury securities maintained in custody at the Federal Reserve Bank of New York. The Fed said rate for this facility also will be set initially at 25bp, with a per-counterparty limit of $60 billion per day.
“By creating a temporary source of dollar liquidity for FIMA account holders, the facility can help address pressures in global dollar funding markets that could otherwise affect financial market conditions in the United States,” the Fed said.
The two facilities were established by the Federal Open Market Committee (FOMC), which also voted this week to maintain the federal funds rate target at a range of 0 to 0.25%.