Anna 
Several U.S. banks are beginning to sign up for the Federal Reserve’s Standing Repo Facility, a funding backstop that has been relatively dormant for over two years. The facility allows banks to borrow emergency overnight cash from the Fed through repurchase agreements (repos), using Treasury and agency mortgage securities as collateral. While primary dealers have had access, other banks had been slow to adopt the facility.
The Standing Repo Facility was established in July 2021 to support money markets following interest rate spikes, aiming to address concerns about financial stability. However, banks initially hesitated, partly due to concerns about potential stigma attached to using the facility. There were worries that borrowing from the Fed in a crisis might be perceived as a sign of liquidity issues or other problems.
Despite lingering concerns about stigma, there has been an increase in banks signing up for the facility in recent months. The move is attributed to regulatory pressure on banks to enhance their preparedness for dealing with deposit outflows, especially after incidents like the troubles at New York Community Bancorp. Additionally, growing concerns about potential liquidity shortages in the coming months, as the Fed drains excess cash from the financial system, have contributed to increased interest in the facility.
While the reluctance and perceived stigma persist in some quarters, recent developments indicate a greater acceptance of the Standing Repo Facility among banks. The facility could serve as a valuable tool for banks to access emergency funding in times of stress, helping them manage deposit outflows and maintain liquidity. As the Federal Reserve continues its efforts to normalize monetary policy, the repo facility provides an additional source of contingent overnight liquidity for banks.
The Federal Reserve’s survey in September 2023 showed that 21 out of 93 domestic and foreign banks expressed interest in signing up for the facility, while 39 indicated they did not want to. Since then, seven additional U.S. regional banks have become counterparties to the Standing Repo Facility. The facility could be particularly beneficial during times of stress when funding becomes scarce, and costs rise rapidly. Ready access to such a facility may play a crucial role in determining whether a bank can weather a crisis.
