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On Nov. 17, 2025, the Bank Policy Institute and Morgan Stanley co-hosted a symposium in New York City to discuss current conditions in money markets, the Fed’s balance sheet and implementation framework and how regulations and examiner practices are affecting money market conditions. The symposium was attended by market participants, academics and U.S. and foreign official-sector staff.
Current conditions in money markets
The first discussion session centered around the recent rise in repo rates above the interest paid on reserve balances by the Federal Reserve. Participants saw a mix of factors contributing to the increase, including the Fed’s continuing unwinding of its balance sheet, an increase in the supply of Treasury bills and financial system plumbing issues. While repo rates also rose above the interest on reserve balances (IORB) rate beginning in mid-2018 running into the September 2019 repo turmoil, participants generally agreed that intermediation capacity and market liquidity are better now than in 2019. Factors contributing to better conditions include the growth of FICC-sponsored repo, several new large participants in the market and the creation of the Fed’s standing repo facility.
Banks, rather than money market funds, are now acting as the marginal supplier of repo funding. In the past, money market funds would readily move funds from the Fed’s overnight reverse repo (ON RRP) facility into the repo market if repo rates rose a modest amount. However, use of the ON RRP facility is now close to zero. Because banks are a more inelastic source of repo financing, changes in the repo rate must be larger to cause banks to extend repo funding. That is, banks are generally more reluctant to substitute away from deposits at the Fed into reverse repo, so the repo market has seen a rise in rates recently alongside a pickup in the demand to finance newly issued Treasury securities through repo.
Some participants also noted that banks’ liquidity preferences have changed after the collapse of SVB in March 2023; they have become more hesitant to reduce reserve balances. Part of the hesitancy is driven by examiners requiring banks to assume higher deposit outflow rates when assessing their liquidity risk, which increases bank demand for reserves. Several participants also noted that banks had previously been cautioned by their examiners not to plan on relying on Federal Home Loan Banks (FHLBs) as a source of contingency funding, adding further to banks’ reluctance to shift funds from reserve balances to reverse repos.[1]
Several participants stated that the size and variation of Treasury’s financing needs combined with an at-times maldistribution of reserves are contributing to volatility in repo rates. Repo rate volatility is more likely when fewer reserves are held by commercial bank affiliates of the primary dealers most active in repo markets, rather than reserves being held by other banks. For example, on Oct. 31, when a large amount of Treasury coupon securities settled and repo rates rose sharply, the TGA actually declined over the day owing to a large amount of outgoing payments. Consequently, reserve balances likely rose. Nevertheless, the increase didn’t help the repo markets as the reserves might not have necessarily made it to the institutions that needed it. In addition, the timing of the repo markets matters significantly. Most trades are done by 7:30 a.m. As a result, there’s a very narrow window to get liquidity into the repo markets.
Another theme in the discussion was that the primary dealers that are subsidiaries of the global systemically important banks (GSIBs) were constrained in supplying repo financing, either by their leverage ratio requirement or their risk-weighted capital requirement. At the end of October, both the ON RRP and the SRF rose because the GSIB-surcharge component of risk-weighted capital requirements was constraining some dealers and because it was the end of the Canadian fiscal year. As a consequence, many dealers sought to become smaller by reducing their repo market intermediation. Those money funds that would normally engage in reverse repos with those dealers instead park their cash in the ON RRP facility. Some of the smaller dealers that would normally borrow from larger dealers borrowed from the SRF instead.
Changes in the timing of Fedwire payments is one indication that reserve balances were becoming less abundant. The time at which banks affiliated with primary dealers have received the first half of their incoming payments each day has been rising, indicating that the banks were increasingly waiting until they had received funds over Fedwire before sending funds out.
Some participants noted that a significant portion of repo funding has taken place at rates above the rate on the Fed’s standing repo facility. While the SRF has picked up in November, usage hasn’t been enough to effectively cap repo rates. For example, on Oct. 31, three-quarters of tri-party repo transactions (about $800 billion), the market where primary dealers get funding, took place above 4.15 percent even though the SRF rate was 4 percent. SRF borrowing was $50 billion on the day.
The Fed’s balance sheet and implementation framework
The second discussion session centered around the role of the standing repo facility and its ability to control volatility in money market rates. Participants noted that the facility has not been effective in part because of banks and primary dealers’ reluctance to borrow. Two prominent sources of stigma were attitudes of 1) executive-level management and 2) credit rating agency representatives. One participant suggested that restricting the SRF to primary dealers, rather than also allowing banks to borrow, would reduce stigma. Doing so would make facility use more similar to regular temporary open market operations, in which only primary dealers participate, which are not stigmatized. Relatedly, participants suggested that the Fed could reduce stigma associated with the SRF by 1) describing it as a monetary policy implementation tool rather than a backstop, 2) decreasing the minimum bid rate, 3) centrally clearing SRF loans or 4) moving the auction time earlier to line up with when most activity in the repo market happens. In contrast, one participant mentioned that their discussions with regional banks suggested that examiners were now more comfortable with those banks planning to borrow from the standing repo facility in their internal liquidity stress tests.
There was some commentary among participants on the lack of guidance from the Fed on what the steady-state ample reserve system will look like. It was noted that Lorie Logan, president of the Dallas Fed, defines “ample” as when money market rates are close to that for reserve balances. By that definition, it might be appropriate for the Fed to begin reserve management asset purchases soon to rebuild the buffer above demand and to offset growth in other liabilities at the Fed. In contrast, other participants noted that some volatility in money market rates around the IORB should be tolerated in an ample reserve regime.
More generally, it was noted that since the Fed officially adopted the floor system in January 2019, it hasn’t spent much time with a steady-state balance sheet: QT continued through September 2019, QE 4 began in March 2020 and the Fed is currently still shrinking reserve balances. As a result, it is somewhat of a mystery how the Fed is going to operate when it soon reaches steady state.
Regulations and examiner practices affecting money market conditions
The recently proposed reforms to the supplementary leverage ratio were the main topic of this discussion. It was generally agreed that reducing the SLR requirement would free up balance sheet space for some banks to intermediate in the Treasury and repo markets. Other banks, however, are constrained by their risk-weighted capital requirements or tier 1 leverage ratio requirement and so will not see an improvement in their intermediation capacity because of SLR reform.
As noted, participants also observed that bank examiners had revised their assessment of the duration of deposits in the wake of the runs on SVB and Signature Bank. In response, banks have shortened the duration of their assets and increased their demand for reserve balances.
[1] While previous examiner behavior cautioned banks against relying on FHLB funding in liquidity planning, the Fed recently released a memo on Oct. 29, 2025, instructing examiners not to discourage or prohibit firms from taking into account liquidity available from the Federal Home Loan Banks in managing their liquidity or performing their internal liquidity stress tests.