Repo and Reverse Repo Agreements

Claims Supported by This Source

1. Repo = A transaction where the Desk buys securities with an agreement to sell them back at a later date. Economically similar to a collateralized loan, it temporarily increases reserves in the banking system. A reverse repo is the opposite, temporarily decreasing reserves.
2. The overnight reverse repo (ON RRP) provides an alternative investment for a wide range of institutions that are not eligible to receive interest on reserves, creating a floor for the overnight interest rate. Counterparties include primary dealers, banks, MMFs, and government-sponsored enterprises.
3. The standing repo facility (SRP) creates a ceiling on interest rates. Counterparties are primary dealers and eligible depository institutions, and the collateral is Treasury securities, agency debt, and agency MBS.
4. The Desk typically conducts ON RRP and SRP operations each business day at rates set by the FOMC.

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