Markets

Fed pumps $198 billion into short-term bank funding operations amid big demand

Key Points
  • The Fed conducted three repo operations Thursday as part of a stepped-up program to help keep liquidity flowing.
  • Demand was strong, with two of the moves oversubscribed.
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The Federal Reserve's accelerated moves to help the short-term funding that banks use to operate saw strong demand in their initial outing Thursday.

In three separate operations, the central bank added more than $198 billion to the financial system in a combination of overnight and longer-term offerings announced a day before. Institutions showed big demand for the facilities, offering bids well in excess of the offerings for two of the operations.

The moves are all part of the Fed's intervention in the overnight funding, or repo markets, often described as the plumbing for the banking system. Institutions offer high-quality collateral like Treasurys in exchange for reserves used for funding.

On Wednesday, the central bank said it would increase the amount of overnight repo operations from at least $150 billion to at least $175 billion. In addition, it extended the date for a $45 billion two-week repo operation that was supposed to end Thursday to April 13. Finally, there will be three $50 billion one-month term operations, the first of which happened Thursday.

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The overnight offering saw the Fed accept $103.1 billion of bids. The two-week repo saw $87.1 billion in bids for the $45 billion offered, while the special one-month operation saw $82.6 billion bid for the $50 billion offering.

The Fed began the repo operations in September amid a shortage of liquidity that saw short-term rates briefly surge. Since then, the central bank has instituted its own repo plus a $60 billion a month asset purchase program involving short-term Treasury bills, all of which has increased the central bank's balance sheet by nearly $500 billion.