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Overnight reverse repurchase agreements: Short-term parking for reserves

The FRED Blog has described the use of overnight repurchase agreements to add liquidity to financial markets when bank reserves are ample. Today, we discuss the use of overnight reverse repurchase agreements (ON RRPs).

As the name strongly implies, ON RPPs are the flip sides of overnight repurchase agreements. These operations allow financial institutions that cannot receive interest payments on their reserves to deposit funds at the Fed overnight (with a security held as collateral). These operations remove liquidity from financial markets. ON RRPs are executed by the Federal Reserve Bank of New York, and the FRED graph above shows that their volume has steadily grown since the second quarter of 2021.

Two factors are at play here. First, the planned influx of liquidity to depository institutions to facilitate lending to households and businesses during the COVID-19-induced recession has made reserves plentiful. Second, the rate awarded to depositing institutions was raised from 0 to 0.05% on June 18.

How the graph was created: Search for and select “Overnight Reverse Repurchase Agreements: Treasury Securities Sold by the Federal Reserve in the Temporary Open Market Operations.” Voilà!

Suggested by Diego Mendez-Carbajo.

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