How the Federal Reserve Is Now Competing With Banks for Deposits: Enter the Reverse Repo Facility
The U.S. Federal Reserve could be competing with commercial banks due to a facility called the “overnight reverse repurchase agreement facility,” which has currently drawn in more than $2 trillion in deposits. According to analysts, this has affected bank deposits, as investors run to grab the higher yields it offers compared to traditional banks.
While money funds also invest in Treasury bills, when they pile into bills, bill yields call, reducing their attractiveness. It is only the reverse repo with its yields that is insensitive to supply and demand, that serves as a black hole for bank deposits.
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