Monday, 1 September 2014

SFP vs Reverse Repos vs Fed bills

Remember the fuss around the Fed's RRP change of heart earlier this month?

According to the Treasury Borrowing Advisory Committee, the Fed could have chosen a different sterilization approach: it could have issued its own debt instruments or extended the Supplemental Financing Program, a misnomer for  the Treasury playing at central banking (issuing Tbills for sterilization purposes, for which banks pay in reserves that are held by the Treasury at the Fed).

For TBAC, a committee that brings the Treasury in dialogue with powerful market players (zerohedge calls it the Supercommittee that Really runs America), identified several criteria:

To sum up, the criteria can be grouped in:

- liquidity effects (for Tbills)
- institutional constraints (debt ceiling)
- shadow banks' access to Fed (the 'portable' reserve creation)
- theoretical (ideological) concerns with central bank independence.

Missing from that list is displacing the private repo market...

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