Hi, Cut to the chase, repo is secured borrowing as the name suggests (repurchase agreement) and the counterparty to it is said to be on the reverse repo side. The repo market is populated by banks and money market funds, and a small set of primary dealers that mainly handle business with the Federal Reserve.On the website of the Federal Reserve Bank of New York (NYFED), it's stated that they do reserve repo to drain liquidity from the market and repo to supply money to it.To avoid confusion about the terms used, it's clearly said that repo and reverse repo are termed from the primary dealers' perspective - when the dealers receive (lend) money in exchange of the collateral, it is repo (reverse repo) with the Fed.Ok now, what baffles me is the charts anyone can view on the website of the Federal Reserve Bank of St. Louis.This is for the reverse repo (RRP) and this for the repo (RP).To my understanding and according to many articles heralded newspapers and economics magazines as well as on the web, the Fed has kept on pumping money into the banking system.However, the reverse repo (an absorbing factor of money supply) has grown a lot, while the repo (a supplying factor) has suddenly evaporated as of 2009!Can anyone enlighten me on this? :$Jason

But from the Fed's standpoint, the Fed is receiving securities and lending out money. So it's a reverse repo.

No. As loooooo correctly states, the transactions in these charts are being described from the dealer (not the Fed's) point of view.Part of the answer is that after 2009 the supplying of reserves occurred via outright sales of securities to the Fed, not via repo. The so called QE.

Thank you Acastaldo!

Thanks acastaldo. Good point!Outright purchase (sale) of securities by the Fed will undoubtedly increase (decrease) money supply, and could have possibly replaced the repo market as a policy tool.In fact, this leave rather permanent changes to the money supply (or just generally liquidity) than repo, which are only temporary given its maximum maturity of 65 days (mostly done around 14 days). The data actually shows the cumulative amount of outright purchases of securities reached $2,600 billion (OUT) while the repo completely dried out (see the RP chart in my original post). However, taken all these into consideration, why the Fed purchased securities from the market directly to infuse liquidity, while they enter another channel, the repo market, to absorb some of it (if you look at the RRP chart, it amounts to about $100 billion)? One can argue the Fed uses it to control the speed of supply or to reverse some of its policy mistakes, but then how come such mistakes only occur in one direction but not the other way around?I mean, if there are times of too much liquidity when they want to lock it away, there should also be times of too little liquidity when they'd like to quickly whip up some. What do you think?

Loooo,if I am not wrong, FED has been pumping money and locking it away for solvency, rather that liquidity reasons (well, obviously because of the solvency issues, liquidity tried up). It is not a response to policy mistakes, it's just what they were supposed to do: give liquidity to make counterparts look safer and put that liquidity inside the reserves.

In short, the banking system can have excess liquidity (reserves) or it can have "too little" liquidity. The fed (or the central bank in general) can choose either surplus or a shortage of liquidity to control interest rates (in normal times different central banks choose different levels of liquidity). However, if the Fed buys assets with printed money the liquidity increases. This increase in liquidity (to the extent that this does not increase lending so that reserve requirements increases...but the level of fed purchases are way to large to be able to be absorbed by increase in reserve requirements) needs to be absored by the Fed. As the banking system has excess liquidity there is no need and no demand to conduct repos (that would increase the liquidity in the banking system by the fed taking in securities and pumping out cash). Therefore the fed does not do any repos. The same is true for the ECB and the BoE. Intead the central bank can drain the excess liquidity either by taking in the excess money as excess reserves or by sterilizing the excess liquidity by conducting reverse repos (e.g. the ECB sterilizes the amount under the SMP program). The Fed takes in the cash as excess reserves but have been discussing long-term reverse repos and deposit facilities (like the ECBs sterilization). This paper explains the issue of excess reserves rather well:http://www.newyorkfed.org/research/staf ... 380.pdfhth