Yesterday, March 31, 2020, the Board of Governors of the Federal Reserve System (the “Board”) announced the creation of a temporary repurchase agreement facility for foreign and international monetary authorities (the “FIMA Repo Facility” or the “Facility”) to facilitate liquidity for central banks and other international monetary authorities.  The FIMA Repo Facility is the latest in a series of special liquidity programs that the Board has established to stabilize financial markets in light of economic conditions caused by the global COVID-19 pandemic.  Other initiatives include the establishment of a Money Market Mutual Fund Facility, a Primary Dealer Credit Facility, and a Commercial Paper Funding Facility.

Rationale

The Federal Open Market Committee of the Federal Reserve System established the Facility in order to facilitate easier access to U.S. dollars, thereby providing liquidity for lenders in the authorities’ respective jurisdictions.  It will also reduce pressures on these authorities to sell U.S. Treasury securities to increase their markets’ liquidity.  “Stabilizing foreign dollar markets . . . will support foreign economic conditions and thereby benefit the U.S. economy through many channels, including confidence and trade,” the Board stated in a series of FAQs accompanying the announcement.

Participant Eligibility Requirements

Access to the FIMA Repo Facility is limited to FIMA account holders.  These are generally central banks and other international monetary regulatory bodies.  The Board’s FAQs indicated that “[m]ost FIMA account holders” will be eligible to apply to use the FIMA Repo Facility.  The Board must approve applicants before they may access the Facility.

Mechanics

Participants may use the FIMA Repo Facility to temporarily exchange Treasury securities on the Federal Reserve’s System Open Market Account for U.S. dollars, thereby providing liquidity for lenders in their respective jurisdictions.  They must agree to buy back the securities upon maturity.  Presumptively, this term would be overnight, but can be extended “as needed,” according to the FAQs.  Each transaction will be conducted at an interest rate of twenty-five points over the Interest Rate on Excess Reserves, which is currently 0.10 percent.

Duration

The Board’s announcement stated that the FEMA Repo Facility will begin lending on April 6, 2020, “and will continue for at least 6 months.”