United States: FIMA Repo Facility, 2020

The FIMA Repo Facility was a repurchase agreement facility for foreign and international monetary authorities that provided dollar reserves in exchange for US Treasury securities collateral. The Fed intended the facility to stanch the flow of Treasury sales from the foreign official sector and to complement Fed swap lines in supporting dollar funding markets (FRB 2020a; FRB 2020e). The facility was available to virtually any central bank in the world, while the Fed made swap lines available to only 14 central banks (Hoffner 2023).

To ease conditions in global dollar markets, the Fed expanded and eased the terms of its swap network (Hoffner 2023). On March 15, 2020, the Fed eased the terms of its standing, uncapped swap lines with five other advanced economy central banks ^FNThe five central banks were the Bank of Canada, Bank of England, Bank of Japan, European Central Bank, and Swiss National Bank. From the Fed’s press release: “These central banks have agreed to lower the pricing on the standing U.S. dollar liquidity swap arrangements by 25 basis points, so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 25 basis points. To increase the swap lines’ effectiveness in providing term liquidity, the foreign central banks with regular U.S. dollar liquidity operations have also agreed to begin offering U.S. dollars weekly in each jurisdiction with an 84-day maturity, in addition to the 1-week maturity operations currently offered” (FRB 2020b). (FRB 2020b).On March 19, the Fed extended swap lines to nine additional central banks ^FNFrom the Fed’s press release: “These new facilities will support the provision of U.S. dollar liquidity in amounts up to $60 billion each for the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Korea, the Banco de Mexico, the Monetary Authority of Singapore, and the Sveriges Riksbank and $30 billion each for the Danmarks Nationalbank, the Norges Bank, and the Reserve Bank of New Zealand” (FRB 2020c). (FRB 2020c). The Fed had set up similar swap lines during the Global Financial Crisis of 2007–2009 with the same 14 central banks (French 2023).

To ease the impact of global Treasury sales, the Fed increasingly expanded its direct Treasury purchases and also eased large bank holding companies’ capital requirements for Treasury securities (YPFS 2022). On March 23, the Fed uncapped its outright purchases of Treasury securities, promising to purchase the amounts needed to support market functioning and effective transmission of monetary policy (FRB 2020d). On April 1, the Fed temporarily exempted Treasury securities from the supplementary leverage ratio (SLR) requirement that applies to large banks. This exemption allowed large bank holding companies to not hold capital against their holdings of Treasuries. The SLR easing, like the FIMA Repo Facility, aimed to improve liquidity conditions in the market for Treasury securities (FRB 2020f).

Section 14 of the Federal Reserve Act covers open market operations. Section 14(2)(e) provides the authority for a Reserve Bank “to open and maintain banking accounts for such foreign correspondents or agencies, or for foreign banks or bankers, or for foreign states.” This authority was the basis of the prior creation of the FIMA accounts (US Congress n.d.b; Potter 2017). The Board’s Regulation N authorizes the Reserve Banks to do business with these accounts “to effectuate the conduct of open market operations” subject to the directives of the FOMC (FRB 1962; Potter 2017).

The Fed’s monetary policy committee, the FOMC, authorized the FIMA Repo Facility by notation vote on March 31, 2020 (FOMC 2020e; FRB 2022a). The FOMC did so by amending the standing Authorization for Domestic Open Market Operations (FOMC 2020a; FOMC 2020c; FOMC 2020e).

In the Authorization for Domestic Open Market Operations, the FIMA Repo Facility is not classified under “Open Market Operations,” but is instead authorized under “Transactions with Customer Accounts.” This section authorizes such transactions “to ensure the effective conduct of open market operations, while assisting in the provision of short-term investments or other authorized services for foreign central bank and international accounts,” and authorizes the transactions “when undertaken on terms comparable to those available in the open market” (FOMC 2020c).

The FOMC authorized its Foreign Currency Subcommittee to approve changes to the FIMA Repo Facility’s eligibility, rate, term, and counterparty limits (FOMC 2020d). The Foreign Currency Subcommittee consisted of the FOMC chair and vice chair (typically the FRBNY president) as well as the Fed Board vice chair (FOMC 2020b; FRB 2023).

The Fed reported outstanding and weekly average volumes in its weekly “H.4.1” disclosure report of its balance sheet (Fed n.d.; FRB 2020a).

Section 11(s) of the Federal Reserve Act requires the Fed to release transaction-level data on its Section 14 open market operations with no more than an eight-quarter lag, but only for transactions with nongovernmental counterparties (US Congress n.d.a; US Congress n.d.b). Moreover, as noted in Key Design Decision No. 3, Legal Authority, the FIMA Repo Facility is not classified under “Open Market Operations” in the FOMC’s Authorization for Domestic Open Market Operations but is instead authorized under “Transactions with Customer Accounts” (FOMC 2020c). Although the Fed discloses its central bank swap transactions in real time, it does not disclose FIMA Repo Facility transactions even with a lag (FRBNY n.d.b; FRBNY n.d.c).

In a written response to a question from a member of the Financial Services Committee of the US House of Representatives about the Fed having not disclosed information about individual usage of the FIMA Repo Facility, Fed Chair Jerome Powell wrote that the Fed “does not disclose information regarding accounts and specific services provided to individual account holders, which is in line with international central banking norms and is consistent with the terms on accounts that foreign central banks establish for the Federal Reserve” (FSC 2020, 80).

The FRBNY managed the FIMA Repo Facility operations. The FRBNY services more than 200 foreign official and international institutions, providing them more than 550 deposit and custody accounts (FRBNY n.d.a). Most of these institutions are central banks and other international monetary authorities (see Key Design Decision No. 7, Eligible Institutions).

Additionally, Singh (2022) told YPFS that the FRBNY “went out to 30 counterparties and basically explained to them the modalities of the facility and that we welcomed their participation. It was up to those counterparties as to whether they’d apply, and I think almost all of them did so.” The FOMC also authorized its Foreign Currency Subcommittee to change the FIMA Repo Facility’s rate, term, and counterparty limits (FOMC 2020d).

As noted in Key Design Decision No. 4, Governance, the Fed did not disclose specific recipient eligibility or participation, nor did it disclose any individual transaction details. Singh (2022) noted that the Fed’s counterparties could disclose their access/use of the FIMA Repo Facility if they so chose; see Key Design Decision No. 6, Communication.

The Fed consistently communicated the FIMA Repo Facility as meant to support market functioning—particularly in the Treasury market and foreign dollar funding markets—and thereby supporting the flow of credit domestically (FRB 2020e; FRB 2020g; FRB 2020h). It also regularly referred to the facility as a backstop (FRB 2020g; FRB 2020h; FRB 2022a).

The Fed did not publicly communicate about who applied, received eligibility, or drew on the FIMA Repo Facility (FSC 2020, 80; Singh 2022). FRBNY’s Singh said that “if those countries wanted to, they could have announced their participation, but we didn’t announce it for fear of creating a stigma effect” (Singh 2022).

The central banks of Chile, Colombia, Ghana, Indonesia, Sri Lanka, and Hong Kong announced they had received access to the facility in 2020 ^FNThe Financial Markets Committee—a committee of central bankers and financial sector participants—of Bank Negara Malaysia (BNM, the central bank of Malaysia) wrote in its April 9, 2020, meeting minutes that BNM “informed that it has access to the Federal Reserve’s FIMA repo facility” (BNM 2020). However, it’s unclear if BNM had officially been accepted and/or applied to the facility yet given its recent opening and the potentially required operational hurdles noted in Key Design Decision No. 7, Eligible Institutions. (BCCh 2020; BI 2020; BOG 2020; BR 2020; CBSL 2020; HKMA 2020b). Sweden and South Korea announced FIMA access shortly before their temporary swap lines with the Fed expired (Riksbank 2021; Roh 2021). (See Key Design Decision No. 16, Exit Strategy.)

Virtually all central banks, as well as international organizations such as the Bank for International Settlements, were eligible to apply for the FIMA Repo Facility.

The FRBNY services more than 200 foreign official and international institutions, providing them more than 550 deposit and custody accounts. It also says that “foreign central banks and monetary authorities hold the vast majority of these accounts” (FRBNY n.d.a). “FIMA account holders” describes foreign central banks and other foreign monetary authorities with custodial accounts at the FRBNY (Choi et al. 2022, 102). Choi et al. (Choi et al. 2022) says that the FRBNY “maintains cash and custody accounts for nearly every central bank in the world and the FIMA Repo Facility adds to a suite of Federal Reserve dollar-based correspondent banking and custody services.”

New York Times Fed reporter Jeanna Smialek later reports in a book that the Fed “allowed roughly 170 central banks and foreign entities” with FRBNY accounts “potential access” to FIMA repos (Smialek 2023, 198). The Fed’s “frequently asked questions” (FAQs) released alongside the FIMA Repo Facility rollout said, “Most FIMA account holders [. . .] will be eligible to apply to use the facility,” but that account holders’ applications to the Repo Facility still needed to be approved by the FOMC Foreign Currency Subcommittee (FRB 2020a).

Additionally, Singh (2022) shared with YPFS that the FRBNY “went out to 30 counterparties and basically explained to them the modalities of the facility and that we welcomed their participation.” He said that approximately 30 counterparties enrolled in the facility in its early days and that these counterparties represented “about 75%” of foreign official holdings of Treasury securities.

Prior to the rollout of the FIMA Repo Facility, Singh said, some of the material official sector holders of Treasuries were countries that didn’t have access to the Fed’s expanded network of swap lines—particularly China, then one of the largest foreign holders of Treasuries (US Treasury 2021). And it wasn’t just China, Singh said—“There were other countries with large Treasury holdings, too, that just weren’t able to access swap lines for a variety of reasons.” The FRBNY said in its 2020 annual report on open market operations that FIMA account holders that had enrolled in the facility “represented a broad range of global regions, economic sizes, and levels of economic development, and accounted for a large share of foreign official ownership of outstanding U.S. Treasury securities” (FRBNY 2021, 16).

A press release from Chile suggested the Fed also required potential counterparties to meet certain operational requirements. Banco Central de Chile reported receiving access to the FIMA Repo Facility only after executing the Fed’s functional requirements (BCCh 2020).

Borrowings on the FIMA Repo Facility were limited by the haircut-adjusted market value of eligible borrowers’ Treasury collateral (FRB 2020a). The Foreign Currency Subcommittee of the FOMC also could set per-counterparty, per-day limits ^FNThe directive cited here follows the first extension of the facility in July 2020. There does not appear to be a publicly available implementation directive from immediately following the facility’s authorization and initiation. A footnote in the minutes to the Fed’s July meeting suggests the July directive is an update of the March iteration (FOMC 2020f). (FOMC 2020d). Choi et al. (Choi et al. 2022, 104) clarifies that per-counterparty limits were to be set and communicated on a bilateral basis. Bank Indonesia—the central bank of Indonesia—announced in April 2020 that it had secured a $60 billion FIMA repo line (BI 2020). Bank of Ghana announced a $1 billion FIMA repo line in May 2020 (BOG 2020). The Hong Kong Monetary Authority (HKMA) US Dollar Liquidity Facility—a back-to-back facility funded by the FIMA Repo Facility (see Decision No. 10, Downstream Use of Borrowed Funds)—provided for up to $10 billion, though the HKMA said the facility’s terms were subject to revision (HKMA 2020b). When the Fed made the FIMA permanent, it set a per-counterparty limit of $60 billion on all counterparties, with these limits subject to change by the Subcommittee (FOMC 2021).

Weekly reported outstanding FIMA Repo volume peaked at $1.404 billion on May 13, 2020 (FRB 2022b). Consistent with the timing of that peak, the HKMA reported a draw for $1.400 billion on its facility funded by the FIMA Repo Facility (HKMA 2020b; HKMA 2020c). The FRBNY described usage of the facility in 2020 as “minimal” and largely reflecting “small-value exercises that took place as part of operational onboarding of approved account holders” (FRBNY 2021).

A FIMA account holder could apply to the Repo Facility for access. Once approved by the FOMC’s Foreign Currency Subcommittee, the FIMA account holder could draw on the facility by sending a trade request to the FRBNY. If the trade requested conformed to the repo facility’s terms, the FRBNY would send back a trade confirmation. Then, the FIMA account holder would sell the required Treasury collateral in a repo transaction to the Fed and the collateral would move from the FIMA account holder’s custody account to the Fed’s portfolio account. After the collateral landed, the Fed would send the haircut-adjusted cash value of the securities to the account holder. The Fed itself, rather than the tri-party repo system (provided by Bank of New York Mellon in the US) or an outside vendor, was responsible for post-trade clearing, settlement, and collateral management (Choi et al. 2022, 102). Using the Fed’s systems rather than a private market participant’s may be beneficial for maintaining confidentiality of borrower activity (Potter 2017). For a graphic outline of this process, see Figure 2 in the Appendix.

The FIMA Repo Facility borrowers could make the dollars available to institutions in their jurisdictions or hold them as precautionary balances (Choi et al. 2022; FOMC 2020e). FRBNY’s Singh noted of the foreign central bank Treasury sales that preceded the FIMA Repo Facility’s rollout that “not all of that was used to defend their currencies; a lot of it was just essentially ‘cash under the mattress’” (Singh 2022). The Fed intended this dollar access to help stanch outright sales of Treasury securities by foreign holders and, more broadly, ease strains in global dollar funding markets (FOMC 2020e).

The Hong Kong Monetary Authority set up a dollar auction facility that was funded by dollars it sourced from the FIMA Repo Facility. It provided for seven-day dollar repos at a rate set by auction but not lower than the rate the Fed charged on FIMA (HKMA 2020a).

FIMA repos matured overnight but could be rolled over as needed (FRB 2020a). The HKMA used the funds from the FIMA Repo Facility to offer US dollar liquidity to banks in its jurisdiction on a seven-day basis—as noted in Key Design Decision No. 10, Downstream Use of Borrowed Funds.

FIMA repos charged 25 bps over the Fed’s administered interest rate on excess reserves (FRB 2020a). Throughout 2020, the all-in interest rate for a FIMA repo was thus 35 bps (FRB 2021b). No fees applied to participation in the FIMA Repo Facility.

The Fed said that this rate was generally above private market repo rates that prevail in normal times, intending for the facility to be used in periods of market stress (FRB 2020a). A report from Credit Suisse notes that 35 bps represented a premium over the rate the Fed charged on its domestic repo facilities, which cost primary dealers only the interest rate on excess reserves. Thus, at the margin, the rate differential may have encouraged dealer intermediation relative to direct participation in the FIMA Repo Facility—and thus limited private sector balance sheet relief (Pozsar 2020).

The FIMA Repo Facility did not pose any foreign exchange risk as it swapped dollars for US Treasuries. Price risk was managed via collateral haircuts that aligned with those applied at the Fed’s discount window (FRB 2020a). These haircuts varied between 1% and 8% of the security’s market price depending on the Treasury security’s type and term to maturity (FRS 2020). Collateral was revalued daily for haircut purposes (Choi et al. 2022, 102).

There do not appear to have been any restrictions on the use of borrowed FIMA Repo Facility funds, nor additional restrictions on participation in the facility.

Other options available to the Fed included expanding swap lines to more central bank counterparties or counteracting the foreign central banks’ Treasury sales with additional outright purchases of those securities. (See also, Key Design Decision No. 2, Part of a Package).

FRBNY’s Singh said of expanding the Fed’s network of swap lines that China and some other countries “weren’t able to access swap lines for a variety of reasons” (Singh 2022). Indeed, Smialek (2023) reports of the motivation for the FIMA repos that the Fed “needed to devise a way to shuttle dollars to governments with which it could not take the geopolitically cozy step of establishing a swap line.” Furthermore, the FIMA Repo Facility could accomplish this provision of dollar liquidity “through an existing New York Fed relationship. That made it boring instead of eyebrow raising from a political standpoint” (Smialek 2023, 197–98).

Singh (2022) said of the option for the Fed to simply buy more Treasuries instead of implementing the FIMA Repo Facility: “Of course, we could counteract those Treasury sales with asset purchases, but we’d already committed to trillions of dollars of asset purchases by that point. We didn’t want to make that number even higher.”

When announced on March 31, 2020, the FIMA Repo Facility was to open on April 6 and be in place for at least six months (FRB 2020e). On July 29, 2020, the FOMC extended the facility to March 31, 2021 (FRB 2020g). On December 16, 2020, the FOMC extended the facility to September 30, 2021 (FRB 2020h). In both cases, the Fed announced extensions of its swap lines with other central banks in the same press release.

On July 28, 2021, the FOMC announced that the FIMA Repo Facility would become permanent, with a per-counterparty limit of $60 billion (FRB 2021a). On the same day, the FOMC announced its new Standing Repo Facility, which allows primary dealers and banks to obtain funds from the Fed against U.S. Treasuries, agency debt, and agency mortgage-backed securities. The FOMC said that the interest rate on the Standing FIMA Repo Facility would equal the minimum bid rate for the Standing Repo Facility, then at 25 bps, unless the Foreign Currency Subcommittee set a different rate (FOMC 2021).

Closely following the Fed announcement, the Hong Kong Monetary Authority announced that it would also convert its domestic dollar liquidity facility into a standing arrangement on the same terms (HKMA 2021).

The Fed’s standing dollar swap lines with the original five advanced-economy central banks remain in place. However, the Fed allowed the temporary dollar swap lines with the other nine central banks to expire on December 31, 2021 (Hoffner 2023). Sweden and South Korea, both of which were recipients of the temporary swap lines, announced their FIMA access in December 2021 (Roh 2021; Riksbank 2021).