Record $6.5 Billion Borrowed from Federal Reserve by U.S. Banks Amid Liquidity Concerns

On October 15, 2025, U.S. banks borrowed $6.5 billion from the Federal Reserve's Standing Repo Facility (SRF), marking the largest daily borrowing since the COVID-19 pandemic, excluding end-of-quarter periods. This significant uptick indicates growing liquidity stress within the banking sector. Concurrently, overnight repurchase (repo) rates experienced a notable increase, with general collateral repo rates peaking at 4.36% before settling at 4.12%, up from 4.20% on the previous Friday.

Established in July 2021, the SRF is designed to provide short-term funding to financial institutions by allowing them to exchange high-quality collateral, such as U.S. Treasuries, for overnight cash loans. This facility serves as a backstop to prevent funding shortages and maintain stability in the financial system.

Analysts attribute the recent surge in SRF borrowing to substantial Treasury settlements, including $40 billion on Wednesday and $23 billion on Thursday. These settlements transfer cash from the private sector to the Treasury's account at the Federal Reserve, effectively tightening market liquidity. The U.S. Treasury has been increasing short-term debt issuance as a strategy to manage longer-term yields, further influencing liquidity conditions.

Federal Reserve Chair Jerome Powell has acknowledged signs of tightening liquidity conditions. Speaking at a National Association for Business Economics event, Powell noted indicators such as firmer repo rates and temporary pressures in money markets. He suggested that the Fed's quantitative tightening (QT) campaign, which began in 2022 to reduce the central bank's balance sheet, may conclude soon. Powell stated, "Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions." This potential policy shift is expected to be discussed in the upcoming October meeting.

The recent $6.5 billion borrowing is significant but not unprecedented. On September 15, 2025, U.S. banks borrowed a record $18.5 billion from the SRF, driven by quarterly corporate tax deadlines and large Treasury debt settlements. This earlier instance also highlighted the SRF's role in addressing temporary liquidity strains.

Similar liquidity management actions have been observed internationally. On October 14, 2025, British banks borrowed £6.344 billion ($8.42 billion) from the Bank of England's six-month indexed long-term repo operation, the highest amount since March 2020. This move reflects the Bank of England's efforts to encourage greater use of its facilities while transitioning away from a system of excess bank reserves.

The increased reliance on the SRF and rising repo rates during a non-quarter-end period are viewed as unusual and indicative of tightening liquidity. These developments may signal underlying stress in the financial system, potentially impacting lending practices, interest rates, and overall economic growth. Market participants and policymakers will closely monitor these trends to assess the need for further interventions or policy adjustments.

In summary, the recent surge in SRF borrowing underscores emerging liquidity strains within the U.S. banking system. As the Federal Reserve evaluates its monetary policy strategies, including the potential conclusion of its quantitative tightening campaign, the financial sector remains vigilant to ensure stability and support economic growth.