Fed Drains $2.25 Billion From Banking System With Reverse Repos

The Federal Reserve drained $2.25 billion in reserves from the banking system when it arranged one-day tri-party reverse repurchase agreements.

The transactions don’t represent any change in monetary policy, according to a statement posted June 7 on the Federal Reserve Bank of New York’s website. Treasuries, agencies and agency mortgage-backed securities were eligible collateral.

In a reverse repo, the Fed lends securities for a set period, temporarily draining cash from the banking system. At maturity, the securities are returned to the Fed, and the cash to its counterparties. The central bank added more than $1 trillion in extra cash to its balance sheet as part of its effort to combat the financial crisis.

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 emccormick7@bloomberg.net

To contact the editor responsible for this story: David Liedtka at dliedtka@bloomberg.net

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