The idea has been floated several times now that the Federal Reserve should create a Standing Repo Facility. This would allow banks to hold less reserves and be confident that if they needed to fund their High Quality Liquid Assets (HQLA) in times of stress, the Fed would be ready.
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I am not quite sure what this accomplishes. Hasn’t the Fed always provided an emergency funding vehicle; the Discount Window? There members of the Federal Reserve system and monetize a broad spectrum of assets, not just USTs. Given the conversion of most dealers to bank status I would think that this is a solution in search of a problem.
Banks have as a precaution hoarded liquidity. Whether that is in the form of excess reserves held at the Fed or an investment in short dated treasuries the effect is the same. They are prepared for any reasonable contingency. The last thing they want to do is touch their liquidity buffer as it might telegraph to the Fed that they lack liquidity.
Finally, the Fed misses one point in its analysis of GCF rates. Even if there was a cost effective alternative to the GCF market on statement dates banks still have an incentive to stick with the GCF market regardless of rate as it allows them to net other FICC transactions for balance sheet purposes.