What are standing repo facilities?

The Standing Repo Facility (SRF), established by the Federal Reserve in July 2021, allows eligible counterparties to borrow cash overnight by pledging Treasury securities, agency debt, and agency MBS as collateral. The facility operates at a rate set at the top of the federal funds target range, functioning as a ceiling on overnight repo rates. If market repo rates spike above this level, eligible institutions can simply borrow from the Fed instead, preventing the kind of dislocations that occurred in September 2019.

The September 2019 repo market crisis was the direct catalyst for creating the SRF. Overnight repo rates spiked to nearly 10% when a combination of Treasury settlement demands, corporate tax payments, and reduced excess reserves created a sudden cash shortage in the repo market. The Fed had to intervene with emergency operations, revealing that the existing framework lacked an automatic stabilizer for repo markets. The SRF fills this gap by providing an always-available source of cash for institutions with high-quality collateral.

The facility serves two categories of counterparties. Primary dealers (the major banks and broker-dealers that trade directly with the Fed) can access the SRF directly. A companion facility, the Foreign and International Monetary Authorities (FIMA) Repo Facility, provides similar access to foreign central banks and international institutions that hold Treasuries at the New York Fed. This foreign facility helps prevent forced Treasury sales by foreign central banks during periods of stress, which could otherwise amplify market disruptions.

For financial markets, the SRF's existence is arguably more important than its actual usage. By providing a credible backstop, it prevents the hoarding behavior that can cause rate spikes. Banks know they can always convert Treasuries to cash at the SRF rate, reducing the precautionary demand for cash reserves that tightens money markets. The SRF is part of the Fed's broader "ample reserves" operating framework, alongside interest on reserve balances (IORB) and the overnight reverse repo facility (ON RRP), which together keep the federal funds rate within its target range without requiring the fine-tuned daily operations of the pre-2008 framework.