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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: yard_man who wrote (51585)12/27/2000 1:58:50 PM
From: accountclosed  Read Replies (1) of 436258
 
a repo is a "repurchase agreement". so it puts temporary cash ("reserves") into the system. the fed buys the securities from "primary dealers" which are large institutions chartered to do biz with the fed. the repurchase, in this case 7 days later, pulls the reserves back out of the system.

the money is an entry only as the primary dealers have bank accounts at national banks, and so the fed just writes a credit on its books to the benefit of the primary dealers bank (if the primary dealer is not itself a bank). the reason that they are called reserves is that the cash, then on the credit at the fed to the receiving bank can lend out many times that amount of money as they only have to reserve fractionally against loans.

also, reverse repo operations work oppositely where the fed sells securities temporarily. or if some true bond guru comes around, i may have repo/reverse repo language backwards.
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