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New York Fed increases repo lending by 50%

Section: Daily Dispatches

Fed Increases Short-Term Funding to Keep Lending Markets Stable

By Nick Timiraos
The Wall Street Journal
Monday, March 9, 2020

The Federal Reserve Bank of New York said today it will increase the amount of very short-term loans it has been offering to money markets amid a widening market rout.

The Fed had been slowly reducing its lending in a key short-term financing market for repurchase, or repo, agreements, in which the Fed lends cash overnight or for two weeks, accepting government bonds or mortgage-backed securities as collateral.

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Today's announcement, however, reflects how growing funding strains resulting from the spreading coronavirus epidemic and increased demand for short-term lending have put any reduction in repo lending on hold for now.

Today's adjustments were designed to ensure that the supply of bank deposits held at the Fed, called reserves, "remains ample and to mitigate the risk of money market pressures that could adversely affect policy implementation," the New York Fed said. "They should help support smooth functioning of funding markets as market participants implement business resiliency plans in response to the coronavirus."

The New York Fed said it would increase to $150 billion from $100 billion the amount of repo lending it conducts on an overnight basis through Thursday, when the Fed is set to update its monthly funding schedule. On two days last week, the Fed saw demand for those overnight repo operations exceed the $100 billion limit, though rates didn't rise significantly. ...

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