Banks tap Fed liquidity tool amid year-end pressures

Dec 29 (Reuters) - A key ⁠Federal Reserve ⁠overnight ‍liquidity facility saw increased use on Monday, data from the New York Fed showed.

The U.S. central ‍bank lent a total of $25.95 billion on Monday ​to eligible financial firms via its standing repo operations, the third-highest usage ​of the lending tool since the central bank opened it in 2021 to provide fast loans collateralized with Treasury or mortgage bonds.

The funds ​are lent overnight at 3.75%, the top of the current 3.50%-3.75% target range for the Fed's policy rate.

Money ​markets often experience elevated volatility around the ends of quarters. Standing repo facility ‌use was last higher, at $26 billion, on December 1, and had hit an all-time record October ​31 of $50.35 billion.

The Fed's standing repo ⁠tool was designed as a shock absorber for liquidity when private lending rates were above ‌what the Fed offered, and is seen as key to supporting monetary policy implementation and smooth market functioning.

The Fed stopped drawing ‌down its balance sheet earlier this month, and began buying short-dated ‌government bonds to help manage market liquidity levels and ensure control over its interest rate target system.

Earlier this month the Fed removed a $500 ‍billion daily limit on the tool to encourage freer use by banks "when economically sensible," Fed ⁠Chair Jerome Powell said.

Financial firms also parked $10.55 billion in cash on Fed books Monday via its reverse repo facility, the New York Fed said, down from Friday's $20.34 billion.

(Reporting by Ann Saphir; Editing by Chizu Nomiyama )

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Investor margin borrowing surges 40% in 12 months, nears historic market peaks
• UK regulator to probe TikTok on child safety measures
• TSMC Q2 profit jumps 77% to record, far surpasses expectations