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reverse repos posts

The Fed Plans to Offer Term Deposits to Banks

Posted Jan 3rd 2010 10:00AM by Connie Madon (RSS feed)
Filed under: Market Matters, Commodities, Oil, Federal Reserve, Recession

The U.S. Federal Reserve has maintained a "loose money" policy for over a year. Now, worried that all the money sloshing around could fuel inflation, it is trying to find ways to drain off some excess liquidity.

The latest salvo across the bow is to offer banks term deposits. These deposits would be locked up and the Fed would pay interest on them for a period of up to six months. The interest rate would be determined through an auction process. These term deposits would have the effect of taking money out of circulation for a set period.

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The Fed's plans to drain liquidity from the banking system, prevent inflation

Posted Sep 25th 2009 12:10PM by Connie Madon (RSS feed)
Filed under: Forecasts, Market Matters, Federal Reserve, Recession, Financial Crisis

The Fed plans to use "reverse repos" to drain liquidity from the banking system.

What's a reverse repo? It is quite simple. Let's start with the regular Treasury auctions. The primary dealers (dealers approved by the Fed) and indirect bidders, usually foreign and other investors, bid on Treasury notes and bonds. That leaves the primary dealers with an inventory on hand; that is, unless they then can resell it to other investors.

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