Fed’s standing repo backstop hits record $74.6 billion on year-end funding squeeze

Banks and securities dealers tapped a little-watched Federal Reserve backstop for a record amount on the final trading day of 2025, offering a real-time snapshot of how year-end funding pressures are being managed in the central bank’s “ample reserves” framework.

Record use of the Standing Repo Facility

Counterparties borrowed $74.6 billion overnight from the Fed’s Standing Repo Facility (SRF) on Dec. 31, according to New York Fed data reported by Reuters. It was the highest single-day usage since the facility launched in 2021, topping the prior record of about $50.35 billion set on Oct. 31.

The SRF is designed as an always-available source of overnight cash for primary dealers and approved banks, against Treasury and agency securities. By setting the SRF rate at the top of the Fed’s target range for the federal funds rate, policymakers aim to cap secured overnight borrowing costs and prevent a sudden funding squeeze like the one that disrupted repo markets in September 2019.

On Dec. 31, users pledged roughly $31.5 billion in U.S. Treasuries and $43.1 billion in agency mortgage-backed securities in exchange for cash. Most of the borrowing occurred during the New York Fed’s morning operation window (8:15–8:30 a.m. Eastern), with a smaller operation later in the day bringing the total to $74.6 billion.

Simultaneous cash parking in ON RRP

The same day, other eligible institutions placed about $106 billion at the Fed via the overnight reverse repurchase agreement (ON RRP) facility—the highest balance there since August.

The ON RRP pays a set overnight rate and is intended to help establish a floor under money-market yields. Usage had declined to near zero on some days in 2025 after peaking above $2 trillion in 2022 and 2023.

What the two-way flows suggest

The dual flows—some firms borrowing heavily from the Fed while others lent substantial sums back—highlight a system that may be flush with reserves in aggregate but unevenly supplied at year-end, when balance sheet constraints and reporting dates can intensify short-term funding needs.

Fed officials have said that is precisely when the SRF is expected to be used.

“It is desirable and fully expected that the SRF be used whenever it is economically sensible,” Roberto Perli, the New York Fed official who oversees monetary policy implementation through the System Open Market Account, said in a November 2025 speech. “There is no reason why sizeable participation cannot take place.”

Rates made the SRF attractive

In December, the Federal Open Market Committee lowered its federal funds target range to 3.50% to 3.75%. The SRF rate was set at 3.75% (the top of the range), while the ON RRP rate was set at 3.50%.

Private secured overnight rates—including the benchmark Secured Overnight Financing Rate (SOFR)—had traded at or above the top of the Fed’s range heading into year-end. That dynamic made the SRF a competitive, predictable source of funding.

A shifting balance-sheet backdrop

The spike arrived as the Fed adjusted its balance-sheet strategy. After reducing holdings through quantitative tightening beginning in mid-2022, the central bank halted runoff in late 2025 and began reinvesting all maturing securities.

At its Dec. 10 meeting, the FOMC directed the New York Fed to increase holdings by purchasing Treasury bills in the secondary market “to maintain an ample level of reserves.” The New York Fed later said it would buy about $40 billion in bills starting Dec. 12, framing the purchases as “reserve management” rather than a new round of quantitative easing.

With ON RRP balances largely drained, further balance-sheet reductions would have fallen more directly on bank reserves, a shift long flagged by officials and analysts as a potential source of volatility.

Estimates from policymakers and outside economists put banking-system reserves at roughly $2.8 trillion to $3.3 trillion late in 2025—near an informal lower bound of about $2.7 trillion that some officials have cited as the edge of “ample.”

Structural demand for repo financing

Demand for repo funding has also increased as federal deficits expand the supply of Treasury securities that must be financed, and as leveraged hedge fund strategies in government bonds have grown.

Regulatory filings and dealer surveys show hedge funds’ long positions in cash Treasuries around $2.4 trillion in 2025, with associated repo borrowing up by hundreds of billions of dollars compared with 2019.

Those structural factors, combined with banks’ tendency to shrink balance sheets around quarter- and year-end to manage leverage and capital ratios, can make calendar dates especially sensitive for funding markets.

Calm markets—but rising reliance on Fed backstops

Despite the record SRF usage, broader markets remained orderly. Total borrowing was small relative to an estimated $1.3 trillion in daily activity in the tri-party repo market, and there were no clear signs of spillovers into equities or longer-dated bonds.

Still, the episode underscored how the functioning of key short-term markets increasingly relies on standing Fed facilities to reconcile mismatches between where cash sits and where collateral must be financed.

For investors and policymakers, the year-end data point carried both reassurance and a warning: the post-2019 backstops appear to be working as intended, but the need for record borrowing on an otherwise quiet day suggests the margin for “ample” reserves may be ample—but only barely.