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Eduardo Munoz / Reuters
The Federal Reserve Bank of New York announced on Wednesday that it would increase the size of scheduled operations to provide short-term loans to financial companies.
The Fed announced that it would increase the size of overnight lending proposed on Thursday in the repo market from $ 75 billion to $ 100 billion, while doubling the size of an offer from two weeks spent $ 60 billion.
Banks on Wednesday asked the Fed for reserves for overnight financing of about $ 92 billion, offering collateral in the form of Treasury securities and mortgage-backed securities, compared with the $ 75 billion provided by the central bank.
The decision to increase the size of the loans on the repo market, where borrowers offer collateral such as Treasury bonds in exchange for cash over very short periods, follows recent transactions in which banks have bet for more cash than the Fed. This was especially Monday after banks submitted bids for more than twice the $ 30 billion of two-week loans offered by the Fed.
The demand for liquidity borrowing in the repo market is expected to increase as the end of the quarter approaches. Banks often choose to hold more cash at the end of quarters to ensure they have enough liquid assets to protect against potential losses.
The Fed could continue to offer liquidity to financial firms in the repo market for the rest of the year, said Jerry Pucci, who oversees repo transactions at
Black rock
Inc.
Tuesday at a conference organized by the New York Fed.
The Fed's decision to add reserves aims to avoid a cash deficit at this crucial time. The cost of cash loans climbed to 10% last week, as cash left the financial system as a result of the quarterly corporate tax payment and auction settlement. Treasure. The increase in demand at the end of last year pushed pension rates to 6%.
Write to Daniel Kruger at [email protected]
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