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Fed lowers MMF size for reverse repos

The Financial Times noted today that the Federal Reserve Bank of New York has dropped its size requirements for money market funds that it will do reverse repos with to $5 billion, down from $10 billion. It also reduced minimum bids that money market funds can place with the Fed from $1 billion to $500 million.

The Fed has said it will use reverse repos to drain excess cash from the U.S. financial system and prevent inflation, when the time is right. In a reverse repo, the Fed sells Treasury securities to money market funds through the tri-party repo market and promises to buy them back sometime in the future at a slightly higher price.

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