NEW YORK (Reuters) – The trillions of dollars in overnight cash tucked away daily at the Federal Reserve could turn into a major headache for banks that could squeeze their balance sheets and impair their ability to lend.
The Fed’s reverse repurchase facility (RRP) has attracted a wide array of market participants, helping mop up excess liquidity in the financial system. Led by money market funds, volume at the reverse repo window has topped $2 trillion for 39 straight days.
The Fed is paying a record reverse repo rate of 2.3% following its 75-basis-point interest rate hike last week. Barclays expects daily reverse repo levels to hit between $2.8 trillion and $3.0 trillion by the end of the year.
Views: