The Federal Reserve is easing into its new role as the linchpin of global markets with a new repo facility and changes to capital requirements for America’s largest banks.
It’s all hands on deck at the Federal Reserve, which has so far launched a multitrillion-dollar repo operation and another quantitative easing campaign in a matter of weeks as the coronavirus begins to impact the wider global economy.
The new foreign and international monetary authorities (FIMA) repo facility allows global central banks to enter into repurchase agreements with the Fed.
“This facility should help support the smooth functioning of the US Treasury market by providing an alternative temporary source of US dollars other than sales of securities in the open market,” the Fed said in a statement.
“It should also serve, along with the US dollar liquidity swap lines the Federal Reserve has established with other central banks, to help ease strains in global US dollar funding markets.”
The Fed also eased capital rules for large banks, excluding US Treasury securities and deposits at Federal Reserve Banks from the calculation of the rule for holding companies until 31 March 2021.
“Liquidity conditions in Treasury markets have deteriorated rapidly, and financial institutions are receiving significant inflows of customer deposits along with increased reserve levels,” the Fed wrote.
“The regulatory restrictions that accompany this balance sheet growth may constrain the firms’ ability to continue to serve as financial intermediaries and to provide credit to households and businesses. The change to the supplementary leverage ratio will mitigate the effects of those restrictions and better enable firms to support the economy.”