The Federal Reserve Board published a paper entitled, "Monetary Policy Implementation and Private Repo Displacement: Evidence from the Overnight Reverse Repurchase Facility." Written by Alyssa Anderson and John Kandrac, its Abstract explains, "In recent years, the scale and scope of major central banks' intervention in financial markets has expanded in unprecedented ways. In this paper, we demonstrate how monetary policy implementation that relies on such intervention in financial markets can displace private transactions. Specifically, we examine the experience with the Federal Reserve's newest policy tool, known as the overnight reverse repurchase (ONRRP) facility, to understand its effects on the repo market. Using exogenous variation in the parameters of the ONRRP facility, we show that participation in the ONRRP comes from substitution out of private repo. However, we also demonstrate that cash lenders, when investing in the ONRRP, do not cease trading with any of their dealer counterparties, highlighting the importance of lending relationships in the repo market. Lastly, using a confidential data set of repo transactions, we find that the presence of the Fed as a borrower in the repo market increases the bargaining power of cash lenders, who are able to command higher rates in their remaining private repo transactions." The introduction says, "The rise of shadow banking over the last couple of decades has significantly changed the nature of financial intermediation in United States. In particular, entities beyond banks, including money market funds (MMFs) and securities dealers have become increasingly important financial intermediaries. Additionally, a rise in the importance of many types of collateral-backed funding has accompanied the expansion of the shadow banking sector.... For instance, the repo market is a primary source of short-term funding for dealers, and a large component of MMFs' investment portfolios. However, the expansion of nonbank financial intermediation evidently came with attendant risks to financial stability, which were revealed throughout the most recent financial crisis. For example, a run in the repo market contributed importantly to the severity of the crisis ... and, as the turmoil spread, eventually resulted in a temporary federal guarantee of the systemically important MMF industry."

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