Standing Repurchase Agreement (repo) Facility
In the Statement Regarding Repurchase Agreement Arrangements released on July 28, 2021, the Federal Reserve announced the establishment of a domestic standing repurchase agreement (repo) facility (SRF). The SRF serves as a backstop in money markets to support the effective implementation of monetary policy and smooth market functioning.
When the Federal Reserve conducts an overnight repo, it buys a security from an eligible counterparty and simultaneously agrees to sell the security back the next day. The difference between the purchase price and the sale price of the securities implies a rate of interest earned by the Federal Reserve on the transaction. The FOMC sets the SRF minimum bid rate, which is the minimum interest rate the Federal Reserve is willing to receive in an SRF operation; if the amount of bids exceeds the operation limit, the actual interest rate that a counterparty pays is determined through an auction process. The securities accepted in SRF operations include Treasury securities, agency debt securities, and agency mortgage backed securities.
The SRF serves as a backstop source of financing for its counterparties. That is, in general, any counterparty with access to the SRF should be unwilling to borrow overnight from another counterparty at a rate above the SRF rate. As a backstop, the SRF addresses pressures in overnight funding markets that could spill over to the federal funds markets and impair the implementation and transmission of monetary policy. Counterparties for this facility will include primary dealers and will be expanded over time to include additional depository institutions.
For the current SRF minimum bid rate and other operational settings for the policy tools that support the FOMC's target range for the federal funds rate, see the Committee's most recent implementation note.