Fed expands their overnight repo operations and increases cap. I feel like there’s something bad going on with the economy; this symptom is not normal.

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by FreeThinker

Why doesn’t it concern you when no-one is willing to buy the most secure asset only for one day with their money? Wouldn’t you be concerned if no-one is willing to lend you money even when you offer to put your house as a collateral? That’d make me worry a lot about the value of the house.

The Federal Reserve Bank of New York said Wednesday it would increase the size of scheduled operations to provide short-term cash loans to financial firms.

The Fed said it would increase the size of overnight cash loans offered Thursday through the market for repurchase agreements, or repos, to $100 billion from $75 billion, while doubling the size of a two-week offering Thursday to $60 billion.

Banks asked the Fed for about $92 billion in overnight reserves Wednesday, offering collateral in the form of Treasury and mortgage securities, compared with the $75 billion provided by the central bank.

The decision to increase the size of the loans in the repo market, where borrowers offer collateral such as Treasury bonds in exchange for cash over very short periods, follows recent operations where banks have bid for more cash than the Fed had offered. This was most notable Monday after banks submitted bids for more than twice the $30 billion of two-week loans offered by the Fed.

Demand to borrow cash in the repo market is expected to increase as the end of the quarter approaches. Banks often opt to hold more cash at the end of fiscal quarters to ensure that they have enough liquid assets to protect against potential losses.

The Fed could continue to offer cash to financial firms through the repo market for the rest of the year, said Jerry Pucci, who oversees repo trading at BlackRock Inc., Tuesday at a conference held by the New York Fed.



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