(Reuters) - The Federal Reserve on Thursday awarded a record $474.59 billion of one-day fixed-rate reverse repurchase agreements to 109 bidders at an interest rate of 0.25 percent, the New York Fed said on its website.
The reverse repurchase agreement program is seen as a critical policy tool for the Fed to drain money from the financial system in an effort to achieve its interest rate objectives. In the transactions, banks and other qualified financial institutions park cash with the Fed overnight, receiving Treasury securities as collateral and 0.25 percent in interest.
Thursday’s auction, the last one of 2015, compares with $277.45 billion taken in by the Fed from 82 bidders on Wednesday, and exceeds the previous record amount of $339.48 billion on June 30, 2014.
Demand for the deals typically rises at the end of each quarter as financial institutions shore up their balance sheets and use the Fed as a counterparty to lower their regulatory risk profiles.
The reverse repo program had operated in an extended test mode from September 2013 until the middle of this month as the Fed prepared its tool kit to pull off the first interest rate hike since the financial crisis. Two weeks ago, the Fed raised its benchmark rate for overnight lending among banks for the first time in nearly a decade to a range of 0.25 percent to 0.50 percent from 0.00 percent to 0.25 percent.
Since then, the U.S. central bank also began the formal use of reverse repos to control the lower bound of the target range, and the Fed has said it is prepared to offer all of the nearly $2.5 trillion of Treasuries on its balance sheet as collateral should the demand arise.
Prior to that, the program had been subject to a daily limit of $300 billion, a cap it had imposed in September 2014.
Reporting By Dan Burns; Editing by Chizu Nomiyama