As explained in a new blog post by BPI’s Chief Economist, the Fed’s overnight reverse repurchase (ON RRP) facility could expand to over $1 trillion in the coming months. The ON RRP facility accepts overnight cash investments from banks, GSEs and money market mutual funds and provides Treasuries as collateral. The facility essentially expanded the central bank’s authority to pay interest on reserve balances to a broader set of counterparties such as money market funds. As reserve balances continue to balloon — and after the exclusion of Treasuries and reserves from banks’ supplementary leverage ratios expired, making it more expensive for banks to hold reserves – the use of the facility will likely rise sharply going forward. What was meant to be a temporary measure to ensure the Fed could raise rates when it wanted to do so appears poised to become a massive and permanent government vehicle for private-sector savings.
Access the post by clicking here.