The Federal Reserve has concentrated its use of repurchase agreements to inject liquidity during three distinct episodes since the global financial crisis: in September 2019 following balance sheet reduction and money market rate pressure, in March 2020 during the COVID-19 "dash for cash," and in late 2025 after nearly two and a half years of asset reduction, according to a new analysis published September 30 by the Federal Reserve Bank of New York. The report, authored by Gara Afonso, Jun-Davinci Choi, Gonzalo Cisternas, and Will Riordan, examines how the central bank has deployed repos and reverse repos to manage liquidity and implement monetary policy since 1917. The analysis traces the evolution of these tools from wartime financing mechanisms to modern standing facilities that set ceilings and floors for overnight interest rates.
The Fed conducts repo and reverse repo operations every business day to maintain control over short-term interest rates, the report finds. Since 2021, overnight standing repo operations have taken place twice daily against high-quality collateral including Treasury securities, agency debt, and agency mortgage-backed securities, settling through the tri-party repo platform. Reverse repo usage peaked at approximately $2.5 trillion in early 2023 as liquidity in the banking system expanded from pandemic-related policies, then declined steadily as the Fed reduced its balance sheet. Historical data shows Fed repo holdings briefly exceeded $1 billion in 1918, representing roughly 30 percent of Fed assets at the time. The first use of reverse repos dates to the 1960s—half a century after the Fed conducted its first repos—with early precursors known as matched-sale purchases introduced in 1966 and officially replaced by reverse repos in December 2002.
The standing repo facility rate, set by the Federal Open Market Committee, provides a ceiling on overnight rates by offering eligible counterparties a funding source that reduces their incentive to borrow at market rates above that level, the authors write. The overnight reverse repo rate places a floor under overnight market rates by offering eligible counterparties an investment opportunity that reduces their incentive to lend at rates below it. Unlike earlier reverse repos executed only with primary dealers, the overnight reverse repo facility is available to a broader set of counterparties including money market funds, banks, and government-sponsored enterprises. The report notes that repos inject liquidity by expanding the central bank's balance sheet and increasing reserves in the banking system, while reverse repos drain liquidity by converting reserves received as payment into a repo payable, changing the composition but not the size of balance sheet liabilities.
The Fed's repo operations have transformed significantly to adapt to shifting economic conditions and policy goals, according to the report. The origins trace to November 1917, when repos were authorized as an alternative to collateralized loans called advances, allowing the Fed to circumvent a stamp tax imposed by the War Revenue Act that had raised banks' short-term borrowing costs and limited the central bank's ability to provide liquidity during World War I. Eligible counterparties have evolved from member banks transacting with regional Federal Reserve Banks to primary dealers exclusively during the late 1940s and 1950s, and currently to both primary dealers and qualifying banks. A major shift in collateral and settlement occurred in 1999 when the Fed expanded eligible collateral to include agency debt and mortgage-backed securities in anticipation of Y2K-related liquidity concerns and a constrained supply of Treasury securities, establishing its first tri-party custodian arrangements with Chase and Bank of New York and conducting its first tri-party repo operation in October.
Today, repos and reverse repos function as essential mechanisms for implementing monetary policy and managing liquidity in the financial system, with daily operations providing the Fed with flexible tools to respond to banking system needs. The report concludes that these instruments have proven adaptable across more than a century of use, evolving from wartime financing workarounds to sophisticated standing facilities that anchor short-term interest rates. As the Fed continues to adjust its balance sheet and navigate changing market conditions, repos and reverse repos remain central to its operational toolkit for maintaining financial stability and executing monetary policy objectives.