The Fed ' s New Repo Plan

I ’m not the gambling sort. However, were I so I’d bet dollars to donuts that the Standing Repo Facility (henceforth “SRF”) plan proposed by David Andolfatto and Jane Ihrig in a pair of St. Louis Fed articles (here andhere) will be an important topic of discussion at the upcomingChicago Fed Conference on Monetary Policy Strategy, Tools, and Communication Practices. That plan is supposed to allow the Fed to go on trimming its balance sheet for some time, instead of ending its unwind this October, despite Basel ’s LCR requirements and despite the Fed’s determination to stick with its current floor system of monetary control.Although I ’d rather see the Fed switch to a corridor system, which requires hardly any excess reserves, if we’re to have a floor system I’d rather it be one that keeps the Fed as slim as possible. For that reason, I consider the SRF proposal fully worthy of the attention I expect it to receive in Chicag o. Here I’ll review the events that inspired the plan’s development, and review its workings. I’ll also offer a suggestion for improving it by having it serve, not just the purposes that Andolfatto and Ihrig have in mind, but also in place of the Fed’s discount facilities. Finally, I’ll ar gue that, although adding an SRF to the Fed’s present floor system would improve that system considerably, its presence would also undermine some of the arguments for preferring a floor system to a corridor system. I conclude that an enhanced ...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs