The Federal Reserve … $4 trillion balance sheet
Policy makers are testing a new tool intended to improve their control of near-term borrowing costs. The facility would allow banks, broker-dealers, money-market funds and some government-sponsored enterprises to lend the Fed unlimited amounts of cash overnight at a fixed rate in exchange for borrowing Treasuries in so-called reverse repo transactions.
The facility is the latest innovation from a central bank that has participated on an unprecedented scale in U.S. debt markets since the credit crisis began in 2007. It’s designed to help policy makers — buying $85 billion of bonds a month — siphon off excess cash in the banking system when they begin to tighten policy. Three rounds of so-called quantitative easing have enlarged the Fed’s balance sheet to almost $3.8 trillion.
The new tool — called the fixed-rate, full-allotment overnight reverse repo facility — also is aimed at helping Fed officials address distortions in the market caused by their securities purchases.