Today, the Federal Reserve Bank of New York (FRBNY)announced the commencement of a program to expand its counterparties for conducting reverse repurchase agreement transactions, pursuant to the FRBNY statement issued last October. The expansion is intended to increase the capacity of the reverse repo operations to drain reserves from the banking system, though the FRBNY cautions that “no inference should be drawn about the timing of any prospective monetary policy operation.”
Also, the FRBNY published eligibility criteria for the first set of expanded counterparties, domestic money market mutual funds, in an effort to identify funds that conduct large transactions in the tri-party repo market and that the FRBNY anticipates would participate in a reverse repo program. The FRBNY will likely publish criteria for additional types of firms and for expanded eligibility for previously identified firms. Furthermore, the final size and terms of reverse repo transactions will depend on directives issued by the Federal Open Market Committee.