The difference between the sale price and the repurchase price, together with the length of time between the two legs of the transaction, implies a rate of interest (the reverse repo rate) paid by the Federal Reserve to its counterparty. The transaction leaves the size of the SOMA’s securities portfolio unchanged, but shifts some of the liabilities on the Fed’s balance sheet from bank reserves to reverse repos while the trade is outstanding  7  Unlike IOER, however, a full-allotment ON RRP facility would theoretically offer a perfectly elastic supply of a safe asset at a fixed rate. In practice, the amount of ON RRPs that the Federal Reserve could supply would likely be limited by the lesser of the level of excess reserves or the amount of securities available from the SOMA portfolio for such transactions. BIS central bankers’ speeches  3  point target, is viewed as appropriate for providing some flexibility in interest rate control when the quantity of reserves remains elevated. As for the Fed’s tools for policy implementation, setting the IOER and ON RRP rates at the upper and lower bounds of the target range is a straightforward arrangement at the start of policy firming.
The Federal Reserve has also continued to test its Term Deposit Facility, which provides a term investment option for credentialed depository institutions. Recently, TDF tests varied the rates and maximum awards and introduced an early withdrawal feature that provides favorable treatment of term deposits under the U.S. liquidity coverage ratio. 20  The December 2014 and March 2015 quarter-ends, respectively, had a total of $ billion and $ billion in awarded bids outstanding between term and overnight operations combined. These amounts are close to the $ billion in bids that were submitted in the ON RRP operation at the September 2014 quarter-end, only $ billion of which were filled. On non-quarter-end days, take-up has averaged less than $ billion. 8  BIS central bankers’ speeches  In recent years, money market trading dynamics have changed, reflecting the effects of Fed monetary policy as well as other factors. The expansion of the Federal Reserve’s balance sheet and the introduction of payment of interest on reserves have significantly altered the motivation for many fed funds trades. 21 With an abundant supply of reserves available, banks’ need to borrow funds to meet their reserve requirements or to clear financial transactions has been dramatically reduced. Meanwhile, entities that have surplus cash but are not able to earn IOER, such as Federal Home Loan Banks, lend funds at sub-IOER levels to banks that borrow them for the purposes of depositing them at the Fed to earn IOER.