NEW YORK Aug 4 The New York Federal Reserve
said on Wednesday it accepted $180 million in agency
mortgage-backed securities (MBS) as collateral for reverse
This reverse repo exercise is the first that uses agency
MBS as collateral.
With reverse repos, the N.Y. Fed exchanges MBS, agency
bonds and Treasuries for cash from bond dealers and money
market funds. The repos are a tool for the U.S. central bank to
reduce the $1 trillion in excess reserves in the banking
The vast amount of reserves was a result of the various
emergency programs the Fed and the government created to combat
the recession and the global credit crisis.
The New York Fed said Tuesday it intends to hold small
reverse repos with MBS as collateral with the goal of ensuring
they go smoothly whenever the U.S. central bank decides to use
them to drain reserves.
This latest round of reverse repo exercise is not a change
in the Fed's current monetary policy, the N.Y. Fed said in a
Wednesday's reverse repos cleared at 0.25 percent, the top
end of the Fed's target range for short-term interest rates.
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(Reporting by Richard Leong; editing by Jeffrey Benkoe)