FOMC Minutes Excerpt: Standing Repo Facility Seen As Useful>

     WASHINGTON (MNI) - The following is an excerpt of the Federal Open 

Market Committee minutes describing committee's policy action, 

published Wednesday for the October meeting: 

     Many participants noted that, once an ample supply of reserves is 

firmly established, there might be little need for a standing repo 

facility or for frequent repo operations. Some of these participants 

indicated that a basic principle in implementing an ample-reserves 

framework is to maintain reserves on an ongoing basis at levels that 

would obviate the need for open market operations to address pressures 

in funding markets in all but exceptional circumstances. Many 

participants remarked, however, that even in an environment with ample 

reserves, a standing facility could serve as a useful backstop to 

support control of the federal funds rate in the event of outsized 

shocks to the system. Several of these participants also suggested that, 

if a standing facility were created that allowed banks to monetize a 

portion of their securities holdings at times of market stress, banks 

could possibly reduce their demand for reserves in normal times, which 

could make it feasible for the monetary policy implementation framework 

to operate with a significantly smaller quantity of reserves than would 

otherwise be needed. A couple of participants pointed out that 

establishing a standing facility would be similar to the practice of 

some other major central banks. A number of participants noted that, 

before deciding whether to implement a standing repo facility, 

additional work would be necessary to assess the likely implications of 

different design choices for a standing repo facility, such as pricing, 

eligible counterparties, and the set of acceptable collateral. Echoing 

issues raised at the Committees June 2019 meeting, various participants 

commented on the need to carefully evaluate these design choices to 

guard against the potential for moral hazard, stigma, disintermediation 

risk, or excessive volatility in the Federal Reserves balance sheet. A 

couple of other participants suggested that an approach based on 

modestly sized, frequent repo operations that could be quickly and 

substantially ramped up in response to emerging market pressures would 

mitigate the moral hazard, disintermediation, and stigmatization risks 

associated with a standing repo facility. 

     Participants made no decisions at this meeting on the longer-run 

role of repo operations in the ample-reserves regime or on an approach 

for conducting repo operations over the longer run. They generally 

agreed that they should continue to monitor the market effects of the 

Federal Reserves ongoing repo operations and Treasury bill purchases 

and that additional analysis of the recent period of money market 

dislocations or of fluctuations in the Federal Reserves non-reserve 

liabilities was warranted. Some participants called for further research 

on the role that the financial regulatory environment or other factors 

may have played in the recent dislocations. 

--MNI Washington Bureau; tel: +1 202-371-2121; email: 

jean.yung@marketnews.com 

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