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Reverse Repo (RRP)

The Fed's overnight reverse repurchase facility — where money funds park excess cash, providing a floor for short-term rates.

Definition

Through the RRP, the Fed takes overnight cash from counterparties (mostly money market funds) and posts Treasuries as collateral. The RRP rate sets the effective floor on short-term funding markets.

RRP balances act as a system-liquidity indicator: large balances mean abundant reserves; rapid drawdown signals reserves becoming scarce.

Why it matters

RRP balances are the cleanest read on excess banking-system liquidity. Their decline preceded the 2023 SVB stress and is closely watched as QT runs.

Worked example

RRP balances peaked above $2.5T in early 2023 and drew down ~$1.8T by 2024 as MMFs reallocated to T-bills — a stealth source of demand for new Treasury issuance.

Frequently asked

Who can use the RRP?⌄

Money market funds, primary dealers, GSEs, and a small set of banks.

What's the difference between RRP and IORB?⌄

IORB is interest on reserves held by banks; RRP is for non-banks. Together they form the rate corridor.

Why does the RRP balance matter?⌄

It indicates excess system liquidity; rapid drawdown signals reserve scarcity is approaching.

What happens when RRP hits zero?⌄

Reserves become the marginal source of liquidity, and QT starts to bite — funding stress risk rises sharply.

Related terms

Dollar Liquidity

QT (Quantitative Tightening) Mechanics

Policy

SOFR-OIS / SOFR-EFFR Spread

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