Post by unlawflcombatnt on Apr 26, 2007 15:11:10 GMT -6
Below is an excerpt from an article describing the use of reverse repos by the Fed to "drain liquidity out of the banking system." The process involves the Fed buying bonds back from the private sector, which reduces the cash reserves of the Fed. The article by Richard Leong is titled Fed turns back time, dusts off old market move. It was published in Reuters.
"Fed turns back time, dusts off old market move
Thu Apr 26, 2007 12:50PM EDT
By Richard Leong
NEW YORK, April 26 (Reuters) - The Federal Reserve did something on Thursday that it hasn't done in the U.S. bond market in three years, performing an overnight reverse repurchase operation that drained $5.25 billion temporarily from the U.S. banking system.
A reverse "repo" is an agreement in which bond dealers purchase securities from the Fed and sell them back at a later date. The purpose is to drain liquidity from the banking system.
A Fed spokeswoman said the Fed last performed a reverse repo, or previously known as a matched sale, in 2004, but she declined to elaborate on the reason behind this now rarely invoked open market move and when it may conduct another reverse repo operation.
Analysts said this throw-back move was simply a way to adjust liquidity in the banking system, not an indication of a Fed policy change. The Fed's repurchase agreements were widely watched more than a decade a ago as a sign whether the central bank was easing or tightening credit.
During much of the 1980s under chairmanship of Paul Volcker and early part of the Alan Greenspan's tenure, the Fed had specific bank reserve targets to achieve its rate policy. It frequently used repos and reverse repos to send signals about the direction of policy.
In 1994, Greenspan abandoned the use of market operations to signal changes on monetary policy. Instead, he decided to issue statements about rate changes after each policy meeting.
More often than not, the Fed now conducts at least one repurchase operation or "repo" daily which involves selling securities to dealers and buying them back at a later date.
A Fed repo adds temporary reserves into the banking system with the goal to keep the federal funds rate, or overnight loans between banks, at the Fed's target level....
Thursday's reverse repo took away some of the $34.5 billion temporary reserves the Fed injected into the banking system on Wednesday, analysts said....
The full article can be found at
Fed turns back time, dusts off old market move
"Fed turns back time, dusts off old market move
Thu Apr 26, 2007 12:50PM EDT
By Richard Leong
NEW YORK, April 26 (Reuters) - The Federal Reserve did something on Thursday that it hasn't done in the U.S. bond market in three years, performing an overnight reverse repurchase operation that drained $5.25 billion temporarily from the U.S. banking system.
A reverse "repo" is an agreement in which bond dealers purchase securities from the Fed and sell them back at a later date. The purpose is to drain liquidity from the banking system.
A Fed spokeswoman said the Fed last performed a reverse repo, or previously known as a matched sale, in 2004, but she declined to elaborate on the reason behind this now rarely invoked open market move and when it may conduct another reverse repo operation.
Analysts said this throw-back move was simply a way to adjust liquidity in the banking system, not an indication of a Fed policy change. The Fed's repurchase agreements were widely watched more than a decade a ago as a sign whether the central bank was easing or tightening credit.
During much of the 1980s under chairmanship of Paul Volcker and early part of the Alan Greenspan's tenure, the Fed had specific bank reserve targets to achieve its rate policy. It frequently used repos and reverse repos to send signals about the direction of policy.
In 1994, Greenspan abandoned the use of market operations to signal changes on monetary policy. Instead, he decided to issue statements about rate changes after each policy meeting.
More often than not, the Fed now conducts at least one repurchase operation or "repo" daily which involves selling securities to dealers and buying them back at a later date.
A Fed repo adds temporary reserves into the banking system with the goal to keep the federal funds rate, or overnight loans between banks, at the Fed's target level....
Thursday's reverse repo took away some of the $34.5 billion temporary reserves the Fed injected into the banking system on Wednesday, analysts said....
The full article can be found at
Fed turns back time, dusts off old market move