In late October and early November 2025, usage of the Federal Reserve's Standing Repo Facility
(SRF) reached elevated levels exceeding $50 billion at month-end -- the highest utilization since
March 2020. Simultaneously, the Overnight Reverse Repo (ON RRP) facility has collapsed to
approximately $24 billion, down from peak levels exceeding $2 trillion in 2023. This
combination signals structural stress in U.S. money markets extending beyond seasonal factors.
These two facilities serve opposite functions in the Fed's monetary policy framework. The SRF is
an emergency lending facility where banks can borrow reserves overnight by pledging Treasury
or agency securities as collateral, paying the SRF rate (currently 4.50%). It acts as a ceiling on
overnight rates. The ON RRP works in reverse: money market funds and other institutions lend
cash to the Fed overnight, earning the ON RRP rate (currently 4.30%). It provides a floor on
rates.
The depletion of ON RRP removes a critical shock absorber. When the facility held trillions in
2021-2023, it functioned as a deployable liquidity reservoir. During stress events, as repo rates
in private markets rose above the ON RRP rate, money market funds would withdraw their cash
from the Fed and deploy it into higher-yielding private repo markets. This automatic flow of
liquidity would stabilize rates without Fed intervention. With ON RRP now depleted to $24
billion, this reservoir is empty. When liquidity shocks occur, there is no pool of cash to flow into
stressed markets. Instead, all pressure falls directly on bank reserves, currently at
approximately $2.8 trillion. The elevated SRF usage indicates that despite aggregate reserves
appearing adequate, banks are unable to efficiently reallocate liquidity across the system.
The core problem is that banks with surplus reserves face prohibitive costs to intermediating
due to post-2008 regulations, particularly the Supplementary Leverage Ratio (SLR) and G-SIB
capital surcharges. The SLR requires capital against all balance sheet assets, including reserves.
For a large bank to lend $1 billion overnight, it expands its balance sheet by that amount,
increasing SLR denominators and potentially triggering higher surcharge brackets. The capital
costs of holding additional assets on the balance sheet often exceed repo market spreads,
rendering arbitrage unviable. Banks with surplus reserves therefore park them at the Fed rather
than lending to institutions that need them.
Current conditions reveal that while dealer behavior around period-ends follows established
patterns, the magnitude of rate effects has grown substantially. Recent Federal Reserve
research documents that SOFR rose as much as 25 basis points above the ON RRP rate at recent quarter-ends, far exceeding the 5-10 basis point moves typical in 2017. The Fed's analysis
attributes this to "growing tightness in the repo market and a diminishing elasticity of supply
and demand" as reserves decline. Critically, the research shows that dealer quarter-end
behavior -- reducing triparty borrowing and shifting to central clearing -- has remained
"remarkably stable," yet rate impacts have intensified. This indicates the problem is not
changing behavior but deteriorating underlying conditions. The pattern mirrors 2018-2019,
when similar dynamics preceded the September 2019 crisis. Academic work from that episode
documented that foreign banks reached minimum reserve levels while domestic G-SIBs
maintained surpluses but declined to intermediate due to balance sheet constraints.¹
November 2025 differs critically from September 2019: the ON RRP buffer is now depleted. In
2021-2023, that buffer absorbed surpluses and prevented repo rate collapse. Its near-zero level
means the system lacks this stabilizer precisely when QT has reduced reserves and Treasury
issuance remains elevated. Additional liquidity pressure falls directly on reserves, leaving repo
markets vulnerable to quarter-end dynamics, tax payments, or Treasury settlement volatility.
Chairman Powell announced that QT will slow dramatically, with Treasury runoff ending while
mortgage-backed securities continue maturing. However, this addresses only aggregate levels,
not the structural issues driving period-end stress. The question remains whether current
reserve levels are sufficient given elevated post-pandemic deposits, outstanding credit line
commitments, tighter balance sheet constraints, and the expired Bank Term Funding Program.
What do these signals indicate? Three interpretations emerge. The most likely is that quarterend and month-end rate effects will continue intensifying as reserves decline further, with the
spread between SOFR and ON RRP at period-ends serving as a barometer of underlying
tightness. Federal Reserve research suggests that as Treasury issuance continues and reserves
decline, "the repo market is likely to tighten further and the effects of quarter- or month-ends
on repo rates may grow, providing another potential indicator that reserves are becoming less
abundant." This would manifest as larger SRF usage at period-ends and persistent elevated Fed
facility usage, though system functioning would remain generally stable between these events. A more adverse interpretation sees a triggering event during an already-stressed period-end
causing broader repo market seizure, forcing the Fed to resume asset purchases and confirming
that meaningful balance sheet normalization is impossible under current structures. An
optimistic interpretation requires regulatory reform -- SLR exemptions for reserves or changes
to quarter-end reporting requirements -- to reduce incentives for balance sheet window
dressing, though this appears politically unlikely.
For banks, the implication is that reserve buffers need to be higher than pre-2019 benchmarks,
and the ratio of demandable claims to liquid assets requires closer monitoring. For investors,
continued volatility in short-term interest rates should be expected, particularly around periodends. The Fed's weekly H.4.1 release tracking SRF and ON RRP levels provides leading
indicators. Money market fund flows have outsized impact as their allocation decisions directly
affect system liquidity buffers.
The transformation underway represents a fundamental shift from bank-intermediated to
partially Fed-intermediated money markets. Post-2008 regulations strengthened individual
bank resilience but broke private intermediation chains. The central bank now serves as both
lender and borrower of last resort, with private markets unable to efficiently connect flows.
September 2019, March 2020, March 2023, and November 2025 episodes demonstrate a
pattern: reserves appear adequate until buffers thin, after which modest events trigger
outsized disruptions.
1. Bostrom, E., Bowman, D., Rose, A., and Xia, A. (2025), "What Happens on Quarter-Ends
in the Repo Market," FEDS Notes, Board of Governors of the Federal Reserve System;
Copeland, A., Duffie, D., and Yang, Y. (2021), "Reserves Were Not So Ample After All,"
Federal Reserve Bank of New York.
2. Du, W. (2022), "Bank Balance Sheet Constraints at the Center of Liquidity Problems,"
Jackson Hole Economic Symposium.
