Banks warily warm up to Fed repo backstop

The Federal Reserve building in Washington. — Reuters

Banks are finally signing up for a U.S. Federal Reserve funding backstop that has been lying nearly dormant for more than two years, putting them in a stronger position to deal with any stress. But it is unclear whether they will want to use it in a crisis.

The Standing Repo Facility allows banks to borrow emergency overnight cash from the Fed through a repurchase agreement, or repo, using Treasury and agency mortgage securities as collateral. Firms that act as the New York Fed's trading counterparties, called primary dealers, have access, but other banks have to apply for it.