By Michael S. Derby Dec 31 (Reuters) – The Federal Reserve Bank of New York's Standing Repo Facility, or SRF, loaned a record amount of cash Wednesday to eligible financial firms, as these companies managed liquidity needs on the final trading day of 2025. The firms borrowed $74.6 billion from the central bank, in loans collateralized with $31.5 billion in Treasury bonds and $43.1 billion in mortgage-backed securities. The borrowing on Wednesday compared to the prior peak of $50.35 billion seen on October 31, which was a quarter-end. While there is always uncertainty about the full scope of liquidity needs around key calendar dates, borrowing seen on Wednesday was in line with some market estimates. And even as Wednesday's SRF take-up hit a high, it was still dwarfed by money market volumes, where the tri-party general collateral market sees volumes of over $1.3 trillion per day. The New York Fed also reported that by way of its reverse repo facility, money funds and other eligible firms parked $106 billion at the Fed, the largest amount since early August. The substantial use of both reverse repo and the SRF are to some degree related: Lenders often pull back at year end and seek the safety of investing cash risk-free at the Fed, which dries up lendable funds, in turn driving up direct borrowing from the central bank. Borrowing from the Fed at year-end is also tied to market forces, where an upward drift in money market rates can make it cheaper to borrow from the Fed compared to private sources. Most expect Wednesday's borrowing surge will dissipate over coming days as more normal trading conditions reassert themselves. The activity at the SRF is highly unlikely to signal any sort of market trouble. BORROWING ENCOURAGED The SRF is part of a suite of facilities that exist to help the Fed manage short-term interest rates to achieve its monetary policy objectives. The SRF has effectively replaced discretionary repo operations the central bank once used to keep its interest rate target where officials wanted it to be. The Fed has been actively signalling that after a long period of moribund usage of the SRF even when it made economic sense to tap it, robust take-up is not a problem for the central bank. To that end, the central bank has been working to ensure eligible financial firms, which are largely banks, will tap the SRF when they have liquidity needs. At the Fed policy meeting earlier this month, the Fed, for example, lifted the aggregate cap on SRF operations. Roberto Perli, who manages the implementation of monetary policy at the New York Fed, said in November that “our counterparties participated in large scale in the repo operations that the Federal Reserve offered in the past; if it makes economic sense, there is no reason why sizeable participation cannot take place” in the two daily SRF offerings. Meeting minutes for the central bank's December 9-10 Federal Open Market Committee showed an active conversation between market participants and the central bank about how to set the SRF so it will be used in the way policymakers want. At the same time, at the start of the month the Fed stopped shrinking the size of its balance sheet and has begun to grow it again to ensure the market has enough cash to allow for relatively stable money market rates and firm control by the central bank of its interest rate target. Scott Skyrm, of money market trading firm Curvature Securities, said the SRF is working to calm some of the turgid conditions that often land at year-end. "Given the soft funding (so far) leading up to year-end, it appears the funding market is more secure, there's less panic, and more confidence that the SRF is working," he said. (Reporting by Michael S. Derby; Editing by Chizu Nomiyama)
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