By Michael S. Derby Dec 31 (Reuters) – Eligible financial firms borrowed a record amount of cash from the Federal Reserve Bank of New York’s Standing Repo Facility, or SRF, Wednesday, as banks and others managed liquidity needs on the final trading day of 2025. The financial firms borrowed $74.6 billion from the central bank, in loans collateralized with $31.5 billion in Treasury bonds and $43.1 billion in mortgage-backed securities. The borrowing on Wednesday compared to the prior peak of $50.35 billion seen on October 31, which was a quarter-end. While there is always uncertainty about the full scope of liquidity needs around key calendar dates, the borrowing seen thus far on Wednesday was in line with some market estimates. The New York Fed will hold a second repo operation at 1:45 p.m. ET, as well as an operation to take in cash via its reverse repo facility. Year-end often complicates liquidity management for some financial institutions as lenders pull back for a variety of reasons, pushing prospective borrowers to the central bank. At the same time, money market rates often rise at quarter and year-end which makes it more economical to borrow from the Fed. Most expect any surge in borrowing today will dissipate over coming days as more normal trading conditions reassert themselves. The activity at the Standing Repo Facility is highly unlikely to signal any sort of market trouble. The SRF is part of a suite of facilities that exist to help the Fed manage short-term interest rates to achieve its monetary policy objectives. The SRF has functionally replaced discretionary repo operations the central bank once used to keep its interest rate target where officials wanted it to be. The Fed has been actively signalling that after moribund usage of the SRF even when it made economic sense to use it, robust take up is not a problem for the central bank. To that end, the central bank has been working to ensure eligible financial firms, which are largely banks, will tap the SRF when they have liquidity needs. At the Fed policy meeting earlier this month, the Fed, for example, lifted the aggregate cap on SRF operations. Roberto Perli, who manages the implementation of monetary policy at the New York Fed, said in November that “our counterparties participated in large scale in the repo operations that the Federal Reserve offered in the past; if it makes economic sense, there is no reason why sizeable participation cannot take place” in the two daily SRF offerings. Meeting minutes for the central bank's December 9-10 Federal Open Market Committee showed an active conversation between market participants and the central bank about how to set the SRF so it will be used in the way policymakers want. Scott Skyrm, of money market trading firm Curvature Securities, said the SRF is working to calm some of the turgid conditions that often land at year-end. "Given the soft funding (so far) leading up to year-end, it appears the funding market is more secure, there's less panic, and more confidence that the SRF is working," he said. (Reporting by Michael S. Derby; Editing by Chizu Nomiyama )
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