Banks tap Fed liquidity tool amid year-end pressures

 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.  

https://www.msn.com/en-us/money/markets/banks-tap-fed-liquidity-tool-amid-year-end-pressures/ar-AA1TesrB