- Regulator imposes new counterparty selection criteria
- They will prevent Circle from using the repo mechanism
The Federal Reserve Bank of New York (NY Fed) imposed new counterparty selection criteria for the reverse-repurchase program. These rules will prevent Circle from accessing Fed funds.
The New York Fed will now not work with funds “organized for a single beneficial owner” and registered as “2a-7 funds.”.
The Circle Reserve Fund falls into this category because it is managed by BlackRock Advisors.
The reverse-repurchase program allows money market funds to lend overnight to the Fed at a fixed rate.
At the moment this rate is 4.8%.. Initially, the repo program was created as a tool to stabilize the financial system.
But over time it has become an attractive tool for high returns. In this case, the counterparty has minimal risk, because he credits the Fed. The repo program currently has raised $2.3 trillion.
There are several versions of why the New York Fed dropped Circle from its program. Here’s what The Wall Street Journal analyst Nick Timiaros writes:
Ironically, Circle optimistically claimed yesterday that 2023 would be the year cryptocurrencies break through.