The Federal Reserve accepted $1.853 billion from seven counterparties in its latest overnight reverse repurchase operation, a number so small by recent historical standards that it barely registers as a rounding error.
For context, this same facility was absorbing north of $2 trillion on a daily basis during 2021-2023.
What the ON RRP facility actually does
Think of the Federal Reserve’s overnight reverse repurchase facility, or ON RRP, as a parking lot for cash. When banks and money market funds have more money than they know what to do with, they can lend it to the Fed overnight in exchange for Treasury securities as collateral. The next morning, the trade reverses.
The facility exists for a very specific reason. It provides a floor on overnight interest rates by offering a risk-free place to park money. If banks can always earn a guaranteed return at the Fed, they won’t lend to other institutions for less than that rate. This helps the Fed keep the federal funds rate within its target range.
