How the Federal Reserve Is Now Competing With Banks for Deposits: Enter the Reverse Repo Facility
The U.S. Federal Reserve could be competing with commercial banks due to a facility called the “overnight reverse repurchase agreement facility,” which has currently drawn in more than $2 trillion in deposits. According to analysts, this has affected bank deposits, as investors run to grab the higher yields it offers compared to traditional banks.The recent banking crisis has made people worried about the security of the U.S.
The “overnight reverse repurchase agreement facility,” or reverse repo, as it is commonly referred to, allows money market funds, which areknown to invest in low-risk instruments, to park money with the U.S. Federal Reserve while earning greater interest than what commercial banks offer. The facility, which was introduced back in 2013 by the Federal Reserve as a backstop for a possible shortage of low-risk investment options in the market, finished last month with $2.3 trillion in funds, down from a record number of $2.
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