What happens if the Fed lowers counterparty credit limits on the Reverse Repo Facility?

At its current counterparty credit limit of $160 billion, the Fed’s Reverse Repo Facility (RRP) can make up 50-90% of the repo books of large money market funds and other approved investors (but not stablecoin funds – see here for details). This ample limit has kept US repo rates in other segments artificially high and demand for dealer balance sheets artificially low. What would happen if the Fed dropped the limit to $80 billion per counterparty? Market participants told us their views and we have some of our own.
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