Why would a bank enter in a Reverse REPO with the FED at 0% when the Interest On Excess Reserves is at 0.10%?
You can see here the REPO and Reverse REPO operations done with the FED. From the FED point of view, in a REPO, they lend money to a counterparty that gives a Bond as guarantee, in a Reverse REPO, the FED borrows liquidity from a counterparty in exchange for a Bond. For example, yesterday, 39 counterparties lent to the FED 209 Billions at 0%.
As you can see in the link, there are counterparties that lend to the FED at 0%. But why would they do that when the Interest On Excess Reserves is positive at 0.10%? Couldn’t they just park the cash as reserves held by the FED gaining 0.10% instead of lending to the FED at 0%? Am I missing something?
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May 13, 2021 at 05:51AM