August 16, 2012 / 3:06 PM / 5 years ago

Fed widens counterparty eligibility for exit strategy

NEW YORK (Reuters) - The Federal Reserve on Thursday again widened the eligibility for counterparties that will participate in its exit strategy from its ultra-loose monetary policy when it is ready to end it.

On Thursday, the Federal Reserve Bank of New York said in order to be eligible to participate in eventual reverse repurchase agreements, government sponsored enterprises must have an average daily outstanding amount of reverse repurchase transactions of no less than $1 billion for the past three months.

The $1 billion level lowered the bar for GSEs, which formerly had to have at least $15 billion of reverse repurchase transactions in the previous three months in order to be eligible to be accepted as a counterparty with the Fed.

The Fed is laying the groundwork for eventually moving to drain $1.5 trillion in excess reserves from the banking system.

The Fed, through reverse repurchase agreements -- known as reverse repos -- with GSEs, primary dealers and money market funds, could remove some of the excess reserves by exchanging them for Treasuries it owns.

Reporting by Chris Reese

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