Introduction to the Standing Repurchase Facility (SRF)
The Federal Reserve’s Standing Repurchase Facility (SRF) reached a new milestone in late 2025, with financial institutions borrowing a record $74.6 billion from the central bank on the last trading day of the year. This amount, secured by $31.5 billion in Treasury bonds and $43.1 billion in mortgage-backed securities, surpassed the previous high of $50.35 billion set on October 31, marking the end of the third quarter.
Context and Relevance
The SRF is a crucial tool employed by the Federal Reserve to manage short-term interest rates and achieve its monetary policy objectives. It replaced discretionary repo operations previously used by the central bank to maintain its target interest rate. The SRF’s robust usage does not pose a problem for the Federal Reserve, as emphasized by the bank itself.
Record-Breaking Loans in 2025
On the last trading day of 2025, financial firms borrowed a record-breaking $74.6 billion from the Federal Reserve through the SRF. This amount was backed by $31.5 billion in Treasury bonds and $43.1 billion in mortgage-backed securities.
Comparison with Previous Records
The $74.6 billion borrowed on the last trading day of 2025 surpasses the previous record of $50.35 billion set on October 31. This demonstrates the increasing reliance on the SRF as financial institutions manage their year-end liquidity needs.
Market Forces and Interest Rates
The SRF’s activity is also influenced by market forces, such as rising interest rates. An upward trend in interest rates can make Federal Reserve loans relatively cheaper compared to private sources. Experts anticipate that the sudden surge in loans will subside as market conditions normalize.
Encouraging SRF Usage
The SRF is part of a suite of mechanisms designed to assist the Federal Reserve in controlling short-term interest rates and fulfilling its monetary policy goals.
SRF’s Role in Interest Rate Management
The SRF has effectively replaced discretionary repo operations previously used by the central bank to maintain its target interest rate. The Federal Reserve has actively communicated that robust SRF usage does not signify a problem for the bank.
Promoting SRF Usage Among Eligible Institutions
To ensure eligible financial institutions, primarily banks, utilize the SRF during liquidity needs, the Federal Reserve has taken steps such as removing aggregate limits for SRF operations at the December monetary policy meeting.
Expert Opinion
Scott Skyrm, from market operations firm Curvature Securities, stated that the SRF is working to alleviate year-end market instability.
“Given the soft funding (so far) ahead of year-end, it appears the credit market is more secure, there’s less panic, and more confidence that the SRF is functioning as intended,” Skyrm said.
Key Questions and Answers
- What is the Standing Repurchase Facility (SRF)? The SRF is a tool used by the Federal Reserve to manage short-term interest rates and achieve its monetary policy objectives.
- Why is the SRF important? The SRF has replaced discretionary repo operations, helping the Federal Reserve maintain its target interest rate.
- What caused the record-breaking loans in late 2025? Financial institutions borrowed record amounts from the SRF to manage year-end liquidity needs, influenced by market forces such as rising interest rates.
- Is the SRF’s robust usage a problem for the Federal Reserve? No, the Federal Reserve has explicitly stated that robust SRF usage does not pose a problem for the bank.
- How does the SRF promote market stability? The SRF helps alleviate year-end market instability by providing a reliable source of liquidity for eligible financial institutions.
