Standing Overnight Repo and Reverse Repo Facilities
ON RRP usage peaked at $2.55 trillion in December 2022—absorbing excess cash that otherwise would have pushed short-term rates below the Fed's target. That number has since declined as the Fed reduced its balance sheet and liquidity conditions normalized. Understanding these facilities reveals how the Fed controls rates in practice, not just in theory.
The Rate Corridor: How It Works
The Federal Reserve manages short-term interest rates through a corridor system bounded by two standing facilities:
Top of the corridor: Standing Repo Facility (SRF) rate Bottom of the corridor: Overnight Reverse Repo (ON RRP) rate
The federal funds rate—the Fed's primary policy target—trades within this corridor. The facilities prevent market rates from drifting too far above or below the target range.
Rate Corridor Diagram Description
Visualize the corridor as a channel:
SRF Rate (ceiling): 4.50% ─────────────────────────────
Fed Funds Target Range: 4.25% - 4.50%
Market Fed Funds Rate: ~4.33% (trades within range)
ON RRP Rate (floor): 4.25% ─────────────────────────────
When rates press against the ceiling, cash is scarce and banks borrow from the SRF. When rates press against the floor, cash is abundant and counterparties park excess funds in the ON RRP. The facilities automatically expand or contract to keep rates within the target range.
Standing Repo Facility (SRF): The Liquidity Ceiling
The SRF provides overnight liquidity to eligible counterparties, acting as a ceiling on repo rates.
How the SRF Works
Mechanics: Counterparties sell Treasury securities or agency debt to the Fed overnight and agree to repurchase them the next day. The Fed provides cash; the counterparty receives liquidity.
Rate: Set at the top of the federal funds target range. If the target is 4.25-4.50%, the SRF rate is 4.50%.
Capacity: Up to $500 billion total, with individual counterparty limits.
Eligible Counterparties
- Primary dealers (currently 24 firms including major banks and broker-dealers)
- Eligible depository institutions (large banks that opt in)
The point is: if overnight repo rates spike above the target—as they did in September 2019 when rates briefly hit 10%—the SRF absorbs that pressure. Counterparties would never pay more than the SRF rate when they can borrow from the Fed directly.
Why the SRF Matters
The September 2019 repo rate spike exposed a gap in the Fed's toolkit. Overnight repo rates jumped from approximately 2% to over 5% (briefly touching 10% intraday) because:
- Reserves were distributed unevenly across the banking system
- Quarter-end regulatory pressures reduced lending
- Large Treasury settlements coincided with tax payments
The Fed intervened with emergency repo operations, but the incident demonstrated the need for a standing facility. The SRF—formally established in July 2021—provides that permanent backstop.
Overnight Reverse Repo (ON RRP): The Rate Floor
The ON RRP absorbs excess liquidity, preventing short-term rates from falling below the target range.
How the ON RRP Works
Mechanics: Counterparties lend cash to the Fed overnight, receiving Treasury securities as collateral. The next day, the Fed returns the cash plus interest, and the counterparty returns the securities.
Rate: Set at the bottom of the federal funds target range. If the target is 4.25-4.50%, the ON RRP rate is 4.25%.
Capacity: Effectively unlimited for eligible counterparties (the Fed can absorb as much cash as offered).
Eligible Counterparties
- Primary dealers (24 firms)
- Money market funds (over 100 eligible funds)
- Government-sponsored enterprises (Fannie Mae, Freddie Mac, Federal Home Loan Banks)
- Banks (can participate but typically find better uses for cash)
The durable lesson: money market funds are the primary users. When they can't find attractive short-term investments, they park cash at the ON RRP. This keeps the funds rate from falling too far below the target.
ON RRP Usage Patterns: What the Numbers Tell You
ON RRP usage serves as a gauge of excess liquidity in the financial system.
Historical Usage Levels
| Period | ON RRP Usage | Context |
|---|---|---|
| Pre-2021 | Near zero | Fed balance sheet smaller, less excess liquidity |
| Mid-2021 | ~$500 billion | QE expanding, cash flooding the system |
| Dec 2022 | ~$2.55 trillion | Peak usage; massive excess liquidity |
| Dec 2023 | ~$700 billion | Declining as QT reduced reserves |
| Dec 2024 | ~$200 billion | Continued normalization |
| Dec 2025 | ~$150 billion | Near pre-2021 levels |
What Drives Usage Changes
Rising ON RRP usage:
- Fed quantitative easing (QE) creates excess reserves
- Treasury paying down debt (returning cash to private sector)
- Money market fund inflows during risk-off periods
Falling ON RRP usage:
- Fed quantitative tightening (QT) drains reserves
- Treasury issuing debt (absorbing private cash)
- Better yields available in private markets (T-bills, repo)
Market Implications
High ON RRP usage (>$1 trillion): Signals abundant liquidity. Funding markets operate smoothly. Risk assets often benefit from easy money conditions.
Low ON RRP usage (<$200 billion): Signals tighter liquidity. Watch for repo rate volatility, especially around quarter-ends and Treasury settlement dates.
Rapidly falling ON RRP usage: May precede the end of QT. The Fed monitors ON RRP as a gauge of reserve adequacy—if usage drops toward zero while repo rates rise, the Fed may slow or stop balance sheet reduction.
The Corridor in Practice: Current Example
Assume the Fed's target range is 4.25-4.50%. Here's how the corridor operates:
| Facility/Rate | Level | Function |
|---|---|---|
| SRF Rate | 4.50% | Ceiling—no counterparty pays more than this for overnight cash |
| Fed Funds Target (upper) | 4.50% | Policy target upper bound |
| Effective Fed Funds Rate | 4.33% | Actual weighted average of overnight trades |
| IOER (Interest on Reserve Balances) | 4.40% | Rate paid on bank reserves at the Fed |
| Fed Funds Target (lower) | 4.25% | Policy target lower bound |
| ON RRP Rate | 4.25% | Floor—no counterparty accepts less than this for overnight cash |
Why the effective rate trades within the range: Banks with excess reserves can earn 4.40% at the Fed, so they won't lend at lower rates. Non-bank entities (which can't hold reserves at the Fed) use the ON RRP to earn 4.25%. The effective fed funds rate (EFFR) lands between these rates based on supply and demand dynamics.
Monitoring the Facilities
Data Sources
Daily: New York Fed publishes ON RRP take-up amounts each day around 1:15 PM ET.
Weekly: Fed's H.4.1 release includes repo operations and reserve levels.
Monthly/Quarterly: Fed staff discusses facility usage in minutes and financial stability reports.
Warning Signs to Watch
Repo rate spikes above target: If overnight repo rates regularly hit the SRF rate, liquidity is scarce. Watch for broader funding stress.
ON RRP drops toward zero while repo rates rise: QT may have gone too far. The Fed typically slows balance sheet reduction before reserves become scarce.
Large intraday swings: Settlement timing, tax payments, or Treasury issuance can cause temporary dislocations—usually resolved within hours but worth monitoring.
Comparison: SRF vs. ON RRP
| Feature | Standing Repo Facility | ON RRP |
|---|---|---|
| Direction | Fed provides cash | Fed absorbs cash |
| Rate position | Ceiling | Floor |
| Primary users | Banks, primary dealers | Money market funds, GSEs |
| Purpose | Prevent rate spikes | Prevent rate collapses |
| Typical usage (2025) | Minimal | ~$150 billion |
| Established | July 2021 | December 2013 (expanded 2021) |
Your Next Step
Bookmark the New York Fed's daily repo operations page. Each trading day, check the ON RRP take-up amount and compare it to the trailing month's average. A sudden drop of $100+ billion over a few weeks warrants attention—it may signal shifting liquidity conditions that affect Treasury yields, money market fund returns, and broader funding markets.
Related: Open Market Operations and Repo Facilities | Role of the Discount Window | How Policy Moves Impact Yield Curves