Marina Lubimova
The Federal Reserve’s Overnight Reverse Repo (ON RRP) facility is approaching negligible usage after holding more than $2 trillion at its peak.
In the latest operation, four counterparties placed $461 million at the Fed, compared with $453 million across eight bids previously.
| Metric | Latest | Previous |
| ON RRP balance | $461M | $453M |
| Change | +$8M (+1.8%) | — |
| Participants/bids | 4 | 8 |
| Average per participant* | $115.3M | $56.6M |
*Based on reported participation.
The daily change is small. The important development is that a liquidity pool once measured in trillions is now measured in millions.
The Mechanics Behind ON RRP
ON RRP allows eligible institutions, particularly money-market funds, to lend cash overnight to the Federal Reserve in exchange for securities. The transaction is reversed the next day, with the counterparty receiving its cash plus interest.
Its monetary-policy function is to provide a floor under overnight interest rates by giving eligible institutions an alternative to lending cash at lower rates elsewhere.
A $2 Trillion Cash Pool Has Almost Disappeared
ON RRP balances exceeded $2 trillion during the period of abundant post-pandemic liquidity. The current utilization is $461 million, which is approximately 0.02% of $2 trillion. It is more than 99.9% lower than that reference level.
The cash did not simply disappear. Much of it moved into other short-term instruments as their yields became more competitive.
Treasury Bills Pulled Cash Away From the Fed
Three factors have driven the decline:
- Treasury bills: Increased bill issuance gives money-market funds another highly liquid place to hold cash.
- Relative yields: Funds compare the ON RRP rate with Treasury bills and private repo rates and move money toward higher-returning alternatives.
- Quantitative tightening: Changes in the Fed’s balance sheet affect the amount and distribution of liquidity across Fed liabilities.
The result has been a migration of cash away from ON RRP.
The Focus Is Shifting to Bank Reserves
RRP balances should not be confused with bank reserves.
| ON RRP | Bank Reserves |
| Used heavily by money-market funds | Held by banks |
| Overnight investment facility | Banking-system liquidity |
| Alternative to short-term market instruments | Used for settlement and payments |
| Can decline as cash moves into Treasury bills | Influenced by Fed assets and other liabilities |
This distinction matters for quantitative tightening. When ON RRP contained trillions of dollars, part of the liquidity impact from changes in the Fed’s balance sheet could be absorbed through declining RRP balances rather than bank reserves.
With ON RRP close to depleted, that buffer is much smaller.
The key issue is not a daily $8 million increase in RRP usage, but what happens to bank reserves once there is little RRP liquidity left to absorb balance-sheet changes.
Near-Zero RRP Changes the Liquidity Picture
ON RRP does not have to reach exactly zero, and occasional increases can still occur. With balances already extremely small relative to their former size, investors increasingly need to watch bank reserves, the Treasury General Account (TGA), SOFR and other overnight funding rates, and changes in the Fed’s balance sheet.
Together, these indicators provide a broader picture of dollar liquidity than ON RRP alone.
The $461 Million Figure Is No Longer the Main Story
Fed reverse repo usage has fallen from more than $2 trillion to $461 million, leaving the facility effectively drained compared with its earlier scale.
Attention is therefore shifting from ON RRP itself toward bank reserves, Treasury cash flows and short-term funding rates as indicators of how Federal Reserve balance-sheet policy is affecting U.S. financial-system liquidity.
Marina Lubimova
