Journal Article

Is Bank Capital Regulation Driving Continued Use of the Overnight Reverse Repurchase (ON RRP) Facility?

Abstract: Use of the Federal Reserve’s overnight reverse repurchase (ON RRP) facility rose in 2022, coinciding with deposit outflows and declining reserves at commercial banks. A popular narrative suggests that regulatory capital requirements discouraged bank deposit-taking, driving up ON RRP use. However, this story neglects important contributors to the ON RRP’s surge. We find that limited money market investment opportunities, policy uncertainty, and administrative changes likely explain increased ON RRP activity.

Keywords: Federal Reserve; bank reserves;

JEL Classification: G21; E58;

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Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Economic Bulletin

Publication Date: 2022-12-16

Issue: December 16, 2022

Pages: 4