The Federal Reserve said it is
conducting tri-party reverse repurchase agreements with money-
market mutual funds as policy makers prepare for the eventual
withdrawal of monetary stimulus.
The transactions, part of a series of open-market
operations that began in 2009, don’t represent any change in
monetary policy, according to a statement yesterday on the
Federal Reserve Bank of New York’s website. Treasuries, agencies
and agency mortgage-backed securities will be eligible
collateral today.
In a reverse repo, the Fed lends securities for a set
period, temporarily draining cash from the banking system. At
maturity, the securities are returned to the Fed, and the cash
to its counterparties. The central bank added more than $1
trillion in extra cash to its balance sheet as part of its
effort to combat the financial crisis.
Today’s reverse repos are with the 32 money funds added as
counterparties in January. The Fed began adding money funds last
year as the 20 securities firms that act as primary dealers work
to shore up their own balance sheets after the worst financial
crisis in decades. The central bank has drained $6.85 billion in
reserves from the banking system through tri-party reverse repos
since it began what it calls “readiness exercises” in 2009.
In a tri-party arrangement, a third party functions as the
agent for the transaction and holds the security as collateral.
JPMorgan Chase amp; Co. and Bank of New York Mellon Corp. are the
only banks that serve in a trade-clearing capacity in the tri-
party repo market.
To contact the reporter on this story:
Liz Capo McCormick in New York at
emccormick7@bloomberg.net
To contact the editor responsible for this story:
David Liedtka at dliedtka@bloomberg.net
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