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Fed Begins Conducting Repo Agreements in Readiness Program

August 03, 2012

The Federal Reserve said it’s conducting “small-value” repurchase agreements as part of its overall program to test it operation readiness.

The transactions, part of a series of temporary open-market operations that began in 2009, don’t represent any change in monetary policy, according to a statement posted yesterday on the New York Fed’s website. All eligible collateral types will be able to be used in the transactions, which will be conducted with the central bank’s 21 primary dealers.

In June, the Federal Open Market Committee authorized the New York Fed to undertake repos and outright purchases and sales of securities, in addition to reverse repos, for such testing, the New York Fed said. Prior to today, the central bank has only conducted reverse repos as part of the readiness program.

The New York Fed hasn’t conducted a repo since Dec. 30, 2008 and since then has added six primary dealers, the firms that act as counterparties to the central bank, and several system changes and as well as adjustments to support the reform of the tri-party repo market.

In repos, the Fed buys securities from dealers for a set period, temporarily raising the amount of money available in the banking system. At maturity, the securities are returned to the dealers, and the cash to the Fed. In a reverse repo, the opposite occurs.

The fed has historically used repos and reverse repos to help maintain the proper level of money in the banking system to keep overnight interest rates close to the central bank’s target. The Fed has held its target rate for overnight loans between banks in a range of zero to 0.25 percent since December 2008.

In a tri-party arrangement, a third party functions as the agent for the transaction and holds the security as collateral. JPMorgan Chase & 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

To contact the editor responsible for this story: Robert Burgess at

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