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Discussion Paper
How the Fed’s Overnight Reverse Repo Facility Works
Afonso, Gara; Logan, Lorie; Martin, Antoine; Riordan, Will; Zobel, Patricia (2022-01-11)
Daily take-up at the overnight reverse repo (ON RRP) facility increased from less than $1 billion in early March 2021 to just under $2 trillion on December 31, 2021. In the second post in this series, we take a closer look at this important tool in the Federal Reserve’s monetary policy implementation framework and discuss the factors behind the recent increase in volume.
Liberty Street Economics , Paper 20220111

Discussion Paper
Mapping and Sizing the U.S. Repo Market
LeSueur, Eric; Davis, Isaac; Martin, Antoine; Copeland, Adam (2012-06-25)
The U.S. repurchase agreement (repo) market is a large financial market where participants effectively provide collateralized loans to one another. This market played a central role in the recent financial crisis; for example, both Bear Stearns and Lehman Brothers experienced problems borrowing in this market in the period leading up to their collapse. Unfortunately, comprehensive and detailed data on this market are not available. Rather, data exist for certain segments of the repo market or for specific firms that operate in this market (see this recent New York Fed staff report). The ...
Liberty Street Economics , Paper 20120625

Discussion Paper
How the Fed Changes the Size of Its Balance Sheet
Leonard, Deborah; Martin, Antoine; Potter, Simon M. (2017-07-10)
The size of the Federal Reserve’s balance sheet increased greatly between 2009 and 2014 owing to large-scale asset purchases. The balance sheet has stayed at a high level since then through the ongoing reinvestment of principal repayments on securities that the Fed holds. When the Federal Open Market Committee (FOMC) decides to reduce the size of the Fed’s balance sheet, it is expected to do so by gradually reducing the pace of reinvestments, as outlined in the June 2017 addendum to the FOMC’s Policy Normalization Principles and Plans. How do asset purchases increase the size of the ...
Liberty Street Economics , Paper 20170710

Discussion Paper
The Fed’s Balance Sheet Runoff: The Role of Levered NBFIs and Households
Cipriani, Marco; Clouse, James A.; Logan, Lorie; Martin, Antoine; Riordan, Will (2022-04-12)
In a Liberty Street Economics post that appeared yesterday, we described the mechanics of the Federal Reserve’s balance sheet “runoff” when newly issued Treasury securities are purchased by banks and money market funds (MMFs). The same mechanics would largely hold true when mortgage-backed securities (MBS) are purchased by banks. In this post, we show what happens when newly issued Treasury securities are purchased by levered nonbank financial institutions (NBFIs)—such as hedge funds or nonbank dealers—and by households.
Liberty Street Economics , Paper 20220412

Working Paper
Monetary Policy Implementation With an Ample Supply of Reserves
Schulhofer-Wohl, Sam; Kim, Kyungmin; Nosal, Ed; Afonso, Gara; Martin, Antoine; Potter, Simon M. (2020-01-02)
Methods of monetary policy implementation continue to change. The level of reserve supply—scarce, abundant, or somewhere in between—has implications for the efficiency and effectiveness of an implementation regime. The money market events of September 2019 highlight the need for an analytical framework to better understand implementation regimes. We discuss major issues relevant to the choice of an implementation regime, using a parsimonious framework and drawing from the experience in the United States since the 2007-2009 financial crisis. We find that the optimal level of reserve supply ...
Working Paper Series , Paper WP 2020-02

Journal Article
Recent evolution of large-value payment systems : balancing liquidity and risk
Martin, Antoine (2005-01)
Large-value payment systems have evolved rapidly in the last 20 years, continually striking a balance between providing liquidity and keeping settlement risk under control. Changes to the design or to the risk management policies of such systems were needed, in part, due to the growth in the value of transactions on these systems. For example, in the United States the value of transactions on Fedwire, the Federal Reserve?s large-value payment system, increased from about 50 times GDP in 1989 to over 62 times GDP in 2003. This value exceeded $704 trillion in 2003. This growth raised concerns ...
Economic Review , Volume 90 , Issue Q I , Pages 33-57

Discussion Paper
What’s Up with GCF Repo®?
Adenbaum, Jacob; Martin, Antoine; Selig, Ira; Hubbs, David (2016-05-02)
In a recent Important Notice, the Fixed Income Clearing Corporation (FICC) announced that it would no longer support interbank trading for its General Collateral Finance Repo Service. (GCF Repo, hereafter GCF Repo, is a registered service mark of FICC.) But what exactly is the GCF Repo market? And what is interbank GCF Repo specifically? In a series of four posts we take a close look at the GCF Repo market and how it has evolved recently. This first post provides an overview of the GCF Repo market and evaluates its size relative to that of the tri-party repo market as a whole. We also explain ...
Liberty Street Economics , Paper 20160502

Report
Monetary policy implementation frameworks: a comparative analysis
Martin, Antoine; Monnet, Cyril (2008)
We compare two stylized frameworks for the implementation of monetary policy. The first framework relies only on standing facilities, and the second one relies only on open market operations. We show that the Friedman rule cannot be implemented in the first framework, but can be implemented using the second framework. However, for a given rate of inflation, we show that the first framework unambiguously achieves higher welfare than the second one. We conclude that an optimal system of monetary policy implementation should contain elements of both frameworks. Our results also suggest that any ...
Staff Reports , Paper 313

Discussion Paper
A Closer Look at the Fed’s Balance Sheet Accounting
Wolgemuth, Jennifer; Leonard, Deborah; Martin, Antoine (2017-08-04)
An earlier post on how the Fed changes the size of its balance sheet prompted several questions from readers about the Federal Reserve’s accounting of asset purchases and the payment of principal by the Treasury on Treasury securities owned by the Fed. In this post, we provide a more detailed explanation of the accounting rules that govern these transactions.
Liberty Street Economics , Paper 20170804

Discussion Paper
The Federal Reserve’s Large-Scale Repo Program
Wessel, Timothy; Clark, Kevin; Martin, Antoine (2020-08-03)
The repo market faced extraordinary liquidity strains in March amid broader financial market volatility related to the coronavirus pandemic and uncertainty regarding the path of policy. The strains were particularly severe in the term repo market, in which borrowing and lending arrangements are for longer than one business day. In this post, we discuss the causes of the liquidity disruptions that arose in the repo market as well as the Federal Reserve’s actions to address those disruptions.
Liberty Street Economics , Paper 20200803

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