The Federal Open Market Committee (FOMC) on Wednesday announced the establishment of a permanent repo agreement tool to support the effective implementation of monetary policy and smooth market operation.
The Fed said in a statement that the two permanent instruments, which are aimed at domestic and overseas respectively, will be backed by the money market. Before that, there had been years of discussion within the market about whether these tools were needed and what form they would take. The Fed already has temporary buyback tools.
Through its domestic permanent repurchase facility, the Fed will conduct daily repurchase operations on Treasuries, agency bond securities and agency mortgage-backed securities, up to a maximum of $500 billion. Through its permanent overseas repurchase facility, the Fed will sign overnight repurchase agreements with foreign official agencies to host US Treasuries at the New York Fed for repurchase operations if necessary.
The minimum bidding price for these two tools is initially set at 25 basis points.
Counterparties to domestic operations will include primary dealers and will be extended to more deposit-taking institutions over time.
Overseas tools set an initial limit of $60 billion per counterparty.