The US Treasury is exploring investing part of its cash balance in the roughly $13 trillion repurchase agreement market, reviving a two-decade-old idea. The plan, discussed in recent Treasury surveys of primary dealers and the Treasury Borrowing Advisory Committee, would deploy some of the government's $1 trillion cash pile as an active counterparty alongside Federal Reserve liquidity operations. Proponents say it could smooth funding market strains when the Treasury rebuilds buffers or the Fed tightens its portfolio, potentially allowing the Fed to operate with a smaller balance sheet. Critics, including TBAC members who debated the idea in May, argue operational hurdles outweigh modest economic benefits, with CIBC strategists warning dealer balance-sheet capacity is too scarce to accommodate periodic large repos. The Treasury first tested a repo pilot in 2006, but the global financial crisis later made holding cash at the Fed more practical; now, with Treasury debt outstanding at $31 trillion and about $966 billion in the Treasury General Account, the idea has resurfaced under new Fed Chairman Kevin Warsh's review of the central bank's market footprint.
Canadian Imperial Bank Of CommerceCIBC strategists warn that dealer balance-sheet capacity is too scarce to accommodate large repos, implying potential negative impact on CIBC's repo business.
Bank of America Corp
Citigroup Inc.
JPMorgan Chase & Co