Demand from the large liquidity banks of the Federal Reserve in the longer term increased again on Tuesday.
The Federal Reserve Bank of New York said it intervened twice through repurchase agreements or repos. Eligible banks get $ 47 billion in liquidity overnight from the central bank, less than the $ 120 billion that the Fed was willing to provide. But the 14-day repository saw banks offer the Fed $ 43.2 billion in securities, against the Fed’s limit of $ 35 billion. Collectively, the Fed added $ 82 billion in temporary liquidity to the financial system.
On Monday, the Federal Reserve had added $ 60.7 billion of liquidity overnight.
The Fed’s repurchase interventions include US Treasury bonds, agencies and mortgages from eligible banks in what is effectively a short-term cash loan from the central bank, guaranteed by the securities. The banks eligible to access these operations – the companies are called primary distributors – have a limited amount of liquidity that they can obtain from the Federal Reserve.
Banks pay interest to the central bank for accessing their money. The amount of money added by the Fed is not cumulative, since older operations may be maturing.
When the Fed last updated information on its holdings on Thursday, it said its balance sheet was $ 4.11 billion as of January 9, compared to $ 3.8 billion in September. Around $ 210.6 billion in repos interventions were also pending at that time.
The Fed’s repo interventions aim to keep the federal funds rate within the range of 1.50% and 1.75%, and limit the volatility of other money market rates.
The Fed restarted its repos operations last September after an unexpected market volatility and constantly increased the size of its operations. Later, on Tuesday, the Fed is scheduled to update its schedule for future repos operations.
Observers are not sure if the Fed will reduce what it is willing to offer in temporary money or keep the same sizes.
Initially, the Fed had planned to end its repos interventions at the end of the month, but continuing problems in the money markets have broadened the horizon for the effort. Some on Wall Street think that repository operations could continue until early summer. Meanwhile, the Fed is considering other options, such as the adoption of new tools or new paths to liquidity, as a longer-term solution.
Write to Michael S. Derby at [email protected]
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