One of the more important — but easily misunderstood — developments in U.S. funding markets this year has been the evolving role of the Federal Reserve’s Standing Repo Facility (SRF).
What changed?
The Federal Reserve clarified that the SRF now operates without an aggregate operational cap. In practical terms, there is no system-wide ceiling on how much liquidity the Fed can supply on a given day. Instead, access is constrained by counterparty eligibility, per-counterparty limits, and—most importantly—available eligible collateral (e.g., unencumbered Treasuries and agency securities).
What we observed in practice?
Through late-2025, SRF usage rose meaningfully at several points — including record and near-record daily draws in October and around month-end in November and early December. These episodes coincided with elevated repo rates, thin reserve conditions following balance-sheet runoff, and heavy Treasury issuance. Notably, many drawdowns occurred outside traditional quarter-end stress windows, suggesting structural tightness rather than pure seasonality.
Why the SRF remains a backstop — not a primary funding source?
Despite higher usage, the SRF’s role has not fundamentally changed:
- It is priced as a ceiling on repo markets, making it economical only when private funding is stressed
- It provides overnight liquidity only, requiring banks to manage term funding elsewhere
- Access depends on high-quality, unencumbered collateral, naturally limiting reliance
Implications for ILST and CFP frameworks.
The removal of the aggregate cap subtly shifts the modeling conversation:
- The binding constraint moves from “facility availability” to collateral availability and mobilization
- ILST assumptions increasingly focus on usable HQLA under stress, rather than a hard facility limit
- In CFPs, the SRF continues to sit within the broader central-bank facilities toolkit, supporting HQLA monetization without becoming a survival strategy
The broader takeaway.
Late-2025 underscored that modern liquidity management relies on layers: market funding first, standing facilities as shock absorbers, and balance-sheet operations to rebuild reserves and reduce recurrence.
Arnab Pandey 