Money markets may look like a niche topic, but the forces shaping them today could quietly influence everything from government borrowing costs to how safely banks manage your deposits. And this is the part most people miss: small shifts in repo rates, regulations, or the Fed’s toolkit can ripple through the entire financial system.
On November 17, 2025, the Bank Policy Institute and Morgan Stanley brought together market practitioners, academics, and officials from the U.S. and abroad for a symposium in New York City focused on money markets. The agenda covered three big themes: what is happening right now in money markets, how the Federal Reserve’s balance sheet and operating framework are working, and how regulations and supervisory practices are reshaping money market dynamics. The event drew a mix of perspectives from those trading and managing liquidity day to day, those studying these markets, and those crafting or implementing policy.
Current conditions in money markets
The first session zeroed in on a key recent development: repo rates have climbed above the interest rate the Federal Reserve pays on reserve balances. Participants pointed to several overlapping reasons for this move, including the Fed’s ongoing reduction of its balance sheet, a larger supply of Treasury bills hitting the market, and some “plumbing” frictions in the financial system. While something similar happened between mid-2018 and the September 2019 repo stress episode, most attendees felt that market-making capacity and overall liquidity are healthier now than they were in 2019, helped by growth in FICC-sponsored repo, the entry of several sizable new players, and the presence of the Fed’s standing repo facility as a backstop. For someone new to this space, the key idea is that even though rates look volatile, the underlying market structure may be somewhat more resilient than during the last major flare-up.
One striking shift is that banks, not money market funds, are now acting as the marginal providers of repo funding. Previously, when repo rates nudged higher, money market funds would quickly shift cash out of the Fed’s overnight reverse repo facility (ON RRP) into repo, smoothing the market. Today, usage of the ON RRP facility has fallen to near zero, so that automatic stabilizer has largely disappeared. Because banks are a much less flexible source of repo cash, repo rates now need to move more sharply to persuade banks to reallocate funds away from their balances at the Fed and into reverse repo. In practice, that means repo rates have risen as demand to finance new Treasury issuance through repo has picked up, but banks have been slower and more cautious about stepping in than money funds once were.
Participants also emphasized that banks’ liquidity preferences have changed since the collapse of Silicon Valley Bank in March 2023. Many banks are now more reluctant to allow their reserve balances at the Fed to fall, preferring to hold a thicker cushion of on-hand liquidity. A major driver of this behavior is supervisory: examiners have pushed banks to assume faster or larger deposit outflows when they assess liquidity risk, which mechanically boosts the amount of reserves banks want to hold. On top of that, examiners had in the past warned banks not to rely too heavily on Federal Home Loan Banks (FHLBs) as a backup funding source, making banks even more cautious about shifting money from reserves into reverse repos. A later clarification from the Fed instructed examiners not to discourage banks from counting potential FHLB funding in their liquidity planning, but habits and risk appetites may take time to adjust.
Another recurring theme was that the combination of large, variable Treasury financing needs and an uneven distribution of reserves across institutions is contributing to swings in repo rates. Volatility tends to increase when fewer reserves are held by the commercial bank affiliates of primary dealers that are most active in the repo market and more reserves sit elsewhere in the system. For example, on October 31, a substantial volume of Treasury coupon securities settled, repo rates spiked, and yet the Treasury General Account actually declined that day because of large outgoing payments, implying that reserve balances in aggregate likely rose. The problem was that these reserves did not necessarily flow to the specific dealers and banks that needed them to support repo. Timing makes this even tougher: most repo transactions are done by around 7:30 a.m., leaving only a narrow window for liquidity to get to the right places before the market effectively closes for the day.
Constraints on major primary dealers also played a prominent role in the discussion. Many of the largest dealers, especially those inside global systemically important banks, reported that either leverage ratio requirements or risk-weighted capital requirements limit how much repo financing they can offer. At the end of October, usage of both the ON RRP facility and the standing repo facility (SRF) increased. This reflected the extra pressure from the GSIB surcharge component of risk-weighted capital requirements as well as the end of the Canadian fiscal year, which made some dealers eager to temporarily shrink their balance sheets. As a result, several large dealers reduced their repo intermediation, pushing money market funds that would usually lend to them via reverse repos to place their cash in the ON RRP facility instead. Smaller dealers that normally borrow from the large firms turned to the SRF for funding in that period.
Changes in how banks manage their payments offer another clue that reserves may be less plentiful than before. Observers noted that the median time during the day when banks affiliated with primary dealers complete half of their Fedwire payments has been moving later. That pattern suggests these banks are increasingly waiting to receive incoming funds before sending outgoing payments, which is consistent with tighter internal liquidity management and less comfortable reserve positions.
Despite the availability of the SRF, a considerable share of repo funding has recently occurred at rates above the SRF rate. Although SRF usage increased in November, it has not been large enough to place a firm ceiling on repo rates. As an illustration, on October 31, roughly three-quarters of tri-party repo trades—about $800 billion in activity in the core market where primary dealers obtain funding—cleared at rates above 4.15 percent, even though the SRF rate was 4 percent that day. SRF borrowing was only about $50 billion, highlighting that many firms were willing or forced to pay more than the facility rate in the market. That raises an obvious question: why is a tool designed to limit rate spikes not being used more aggressively when rates move above it?
The Fed’s balance sheet and framework
The second session turned to the Federal Reserve’s operating framework and, in particular, the role and effectiveness of the standing repo facility in managing money market rate volatility. Participants broadly agreed that the SRF has not worked as an especially powerful stabilizer so far, in large part because both banks and primary dealers are hesitant to borrow from it. Two prominent sources of this reluctance are internal attitudes at the top levels of bank management and concerns voiced by credit rating agencies, both of which can stigmatize use of central bank facilities. One suggestion was that limiting access to the SRF to primary dealers—excluding direct bank access—could help, because it would make the facility resemble traditional temporary open market operations, which do not carry the same negative connotations.
Several ideas emerged on how to reduce the stigma associated with the SRF and make it more usable as a routine monetary policy tool rather than an emergency lifeline. Suggestions included explicitly framing the facility as a standard instrument for implementing policy rather than a last-resort backstop, lowering the minimum bid rate so that drawing on the SRF feels more economical, centrally clearing the loans to simplify risk management and settlement, and moving the auction earlier in the morning to better match the timing of peak repo activity. Interestingly, one participant noted that, in discussions with some regional banks, examiners now appear more open to those banks including SRF borrowing as part of their internal liquidity stress test planning. That shift may gradually chip away at the stigma, but cultural and reputational concerns often move slowly.
The group also highlighted the lack of detailed public guidance from the Fed on what a “steady-state” ample reserves regime will look like once balance sheet runoff ends. One reference point came from Dallas Fed President Lorie Logan, who has described “ample” reserves as a situation where money market rates trade close to the rate paid on reserves. Using that definition, some argued that it may soon be time for the Fed to restart asset purchases aimed at managing the level of reserves, rebuilding the buffer above demand, and offsetting growth in other Fed liabilities. Others countered that some degree of rate variability around the interest on reserve balances should be viewed as acceptable in an ample-reserves world and that trying to smooth every wiggle could be counterproductive.
More broadly, participants observed that since the Fed formally adopted a floor system in January 2019, it has had very little time operating with a genuinely stable balance sheet. Quantitative tightening continued through September 2019, a new round of asset purchases began in March 2020, and the Fed is still in the process of shrinking reserves today. As a result, no one has much real-world experience with how the system will function once balance sheet runoff ends and the Fed aims to keep reserves roughly constant at an ample level. This uncertainty leaves open questions about how smoothly the framework will work under more typical conditions—and whether another period of trial and error lies ahead.
Regulation, supervision, and money markets
The final session focused on how evolving capital rules and examiner expectations are feeding back into money market behavior. The headline topic was the proposed reforms to the supplementary leverage ratio (SLR), a key constraint on large bank balance sheets. Participants generally agreed that lowering SLR requirements would free up space on some banks’ balance sheets, enabling them to step up their role in Treasury and repo market intermediation. However, they also emphasized that not all banks would benefit equally. Institutions constrained primarily by risk-weighted capital requirements or by their tier 1 leverage ratio, rather than by the SLR, would see little immediate improvement in their capacity to support these markets.
Supervisory reactions to the bank runs at SVB and Signature Bank have also had clear knock-on effects. Examiners have updated their views about how long deposits will stick around, effectively assuming that funding can be more flighty than previously thought. In response, many banks have shortened the maturity of their asset portfolios and increased their desired holdings of reserves, favoring liquidity and flexibility over yield. That shift may enhance resilience during stress but can also reinforce the tendency for banks to sit on reserves rather than redeploy them into repo or other money market instruments.
One important clarification came in a recent Federal Reserve memo that reversed earlier examiner behavior regarding Federal Home Loan Bank funding. Where banks had previously been warned not to rely on FHLBs as part of their liquidity plans, the new guidance instructs examiners not to discourage or prohibit firms from considering available FHLB liquidity when managing their liquidity positions or running internal stress tests. In theory, recognizing FHLB lines as a valid source of contingency funding should give banks more comfort to use some of their reserves more actively rather than hoarding them. But here’s where it gets controversial: will banks actually change their behavior, or will the memory of recent crises keep them in a permanent defensive crouch?
The symposium wrapped up with a reminder that the viewpoints shared do not necessarily represent those of the Bank Policy Institute’s member institutions and that none of the discussion should be treated as legal advice. The conversation set the stage for further exploration of related topics, including the role and design of the Fed’s discount window, which is slated for deeper discussion in a subsequent piece. That follow-up will likely delve into another sensitive area: how to encourage banks to use backstop tools as intended without triggering panic or stigma in markets.
In your view, are regulators and the Fed being too cautious—holding back healthy market functioning—or not cautious enough, leaving the system vulnerable to another bout of turmoil? Do you think facilities like the SRF should be treated as everyday tools or kept as emergency options only? Share where you stand, especially if you disagree with the prevailing views—this is exactly the debate the system needs.
