Jan. 15 (Bloomberg) -- The Federal Reserve Bank of New York expanded its counterparties in reverse-repurchase agreements for use when policy makers eventually drain the record amount of cash they added to the financial system.
The Fed added 13 additional banks, government-sponsored enterprises, such as the Federal Home Loan Bank of Boston, and money funds to its list of approved reverse-repo counterparties. The New York Fed posted the firms added on its website today.
The central bank began in 2010 expanding counterparties beyond its primary dealers in a plan to increase its future capacity and ability to withdraw the unprecedented amount of liquidity it has added to the financial system since global financial crisis in 2008.
In a reverse repo, the Fed lends securities for a set period, draining cash from the banking system. At maturity, the securities are returned to the Fed, and the cash to the primary dealers. In a tri-party repo, a clearing bank acts as a third party to make sure there’s adequate collateral behind the repo and that it conforms throughout the life of the transaction to the investor’s requirements.
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