Banks’ demand for longer-term liquidity increases in latest repo operation
By Michael S. Derby | 14 January 2020
THE WALL STREET JOURNAL — Big banks’ demand for longer-term Federal Reserve liquidity flared up again on Tuesday, on a day where the central bank extended its plans to intervene in markets into mid-February.
The Federal Reserve Bank of New York said it intervened twice via repurchase agreements, or repos. Eligible banks drew $47 billion in overnight liquidity from the central bank, less than the $120 billion the Fed was willing to provide. But the 14-day repo saw banks offer the Fed $43.2 billion in securities, against the Fed’s $35 billion cap. Collectively, the Fed added $82 billion in temporary liquidity to the financial system.
On Monday, the Fed had added $60.7 billion overnight liquidity.
Fed repo interventions take in U.S. Treasurys, agency and mortgage bonds from eligible banks in what is effectively a short-term loan of central-bank cash, collateralized by the securities. Banks eligible to access these operations—the firms are called primary dealers—are limited in the amount of liquidity they can tap from the Fed.
When the Fed last updated information on its holdings on Thursday, it said its balance sheet stood at $4.11 trillion as of Jan. 9, versus $3.8 trillion in September. About $210.6 billion in repo interventions were also outstanding then. […]