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Discussion Paper

Banks’ Balance-Sheet Costs and ON RRP Investment


Abstract: Daily investment at the Federal Reserve’s Overnight Reverse Repo (ON RRP) facility increased from a few billion dollars in March 2021 to more than $2.3 trillion in June 2022 and has stayed above $2 trillion since then. In this post, which is based on a recent staff report, we discuss two channels—a deposit channel and a wholesale short-term debt channel—through which banks’ balance-sheet costs have increased investment by money market mutual funds (MMFs) in the ON RRP facility.

Keywords: overnight reverse repo (ON RRP); balance sheet constraints; money market funds (MMFs);

JEL Classification: G2; G1;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2023-05-18

Number: 20230518