FRB-NY: SLR, Other Bank Stress Led to ONRRP Growth

A new post from the Federal Reserve Bank of New York summarizes a recent staff report analyzing the ONRRP’s explosive growth.  As we have noted before, the study confirms that the combination of a revised SLR and strong deposit in flows in 2021 severely stressed bank balance-sheet capacity, leading large institutions to push deposits to sponsored MMFs.  Indeed, bank-sponsored MMFs had larger inflows than independent MMFs at this time and banks with tighter capital ratios moved disproportionately more funds to their sponsored MMFs.

Reserve Banks Reconsider Liquidity-Backstop Standards, Set-Up

FRB-Dallas President Logan today reinforced findings in recent bank failures about the importance of advance planning for accessing FRB liquidity, urging banks to have legal documentation and collateral arrangements well in advance of possible stress.  Presaging standards we expect shortly from the banking agencies, she also urged regular operational dry runs to ensure ready access to funding sources such as Home Loan Banks and Fed liquidity windows, noting that this would reduce discount-window stigma.