Is Bank Capital Regulation Driving Continued Use of the Overnight Reverse Repurchase (ON RRP) Facility?

W. Blake Marsh and Rajdeep Sengupta
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W. Blake Marsh: https://www.kansascityfed.org/research-staff/w-blake-marsh/

Economic Bulletin, 2022, issue December 16, 2022, 4

Abstract: Use of the Federal Reserve’s overnight reverse repurchase (ON RRP) facility rose in 2022, coinciding with deposit outflows and declining reserves at commercial banks. A popular narrative suggests that regulatory capital requirements discouraged bank deposit-taking, driving up ON RRP use. However, this story neglects important contributors to the ON RRP’s surge. We find that limited money market investment opportunities, policy uncertainty, and administrative changes likely explain increased ON RRP activity.

Keywords: Federal Reserve; bank reserves (search for similar items in EconPapers)
JEL-codes: E58 G21 (search for similar items in EconPapers)
Date: 2022
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