Federal Reserve Introduces Reverse Repo Facility to Compete with Banks for Deposits

The recent increase in deposits into the “overnight reverse repurchase agreement facility” of the US Federal Reserve is causing some concern among analysts, who suggest that the facility is drawing funds away from commercial banks. The reverse repo allows low-risk investment funds to park their money with the Federal Reserve, which provides higher interest rates than banks. This has led to reduced bank deposits, with a drop of almost $126 million in the weeks following the recent bank crisis, according to the Bank Policy Institute. Some analysts suggest that the solution to this issue lies in banks offering more competitive returns. The Federal Reserve could also consider lowering the interest rate it pays through the facility, to mitigate the impact on commercial banks.

Clever Robot News Desk 5^th April 2023