Banks Access Unprecedented Liquidity from NY Fed's Repo Facility

• Collateral breakdown: $31.5 billion in Treasury bonds and $43.1 billion in mortgage-backed securities backed the loans
• NY Fed has been actively encouraging firms to use the facility after initial hesitancy, with officials noting 'no reason why sizeable participation cannot take place'
• Market expects borrowing surge to dissipate in coming days as normal trading conditions return after year-end

Banks Access Unprecedented Liquidity from NY Fed's Repo Facility

Financial institutions borrowed a record $74.6 billion from the Federal Reserve Bank of New York's Standing Repo Facility on Wednesday, December 31, 2025, marking the highest usage since the facility's inception. This surpassed the previous record of $50.35 billion set on October 31, 2024.

The borrowing was collateralized with $31.5 billion in Treasury bonds and $43.1 billion in mortgage-backed securities. The surge reflects typical year-end liquidity pressures as financial institutions manage balance sheet requirements and lenders generally pull back around key calendar dates.

The New York Fed conducted a second repo operation at 1:45 p.m. ET, along with a reverse repo facility operation to absorb excess cash. Market participants had anticipated elevated borrowing levels, and the amounts were largely in line with estimates.

Roberto Perli, who oversees monetary policy implementation at the New York Fed, noted that the central bank has been actively encouraging eligible counterparties to utilize the Standing Repo Facility, addressing previous hesitancy among banks and other financial firms. He emphasized that large-scale participation has precedent and makes economic sense when conditions warrant.

Market analysts expect the elevated borrowing to be temporary, with liquidity conditions normalizing in the coming days as regular trading patterns resume after the year-end period. The facility serves as a critical backstop for financial institutions during periods of funding stress or heightened liquidity needs.

This development underscores the ongoing importance of Fed liquidity tools in maintaining stable financial markets, particularly during calendar-driven stress periods when traditional funding sources may become constrained.