NEW YORK, Aug 4 (Reuters) - The New York Federal Reserve said on Wednesday it accepted $180 million in agency mortgage-backed securities (MBS) as collateral for reverse repurchase agreements.
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 system.
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 statement Tuesday.
Wednesday’s reverse repos cleared at 0.25 percent, the top end of the Fed’s target range for short-term interest rates.
For more, click below: here (Reporting by Richard Leong; editing by Jeffrey Benkoe)