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Banks’ Balance-Sheet Costs and ON RRP Investment

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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.

Suggested Citation

  • Gara Afonso & Catherine Huang & Marco Cipriani & Gabriele La Spada, 2023. "Banks’ Balance-Sheet Costs and ON RRP Investment," Liberty Street Economics 20230518, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:96172
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    File URL: https://libertystreeteconomics.newyorkfed.org/2023/05/banks-balance-sheet-costs-and-on-rrp-investment/
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    More about this item

    Keywords

    overnight reverse repo (ON RRP); balance sheet constraints; money market funds (MMFs);
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G1 - Financial Economics - - General Financial Markets

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