As the clock ticks down on the debt-ceiling standoff in Washington, Wall Street firms parked a record $1.605 trillion of cash overnight in the Federal Reserve’s popular reverse repo program. See: Here’s what would happen if Washington doesn’t prevent a government shutdown
While the Senate Thursday afternoon passed a bill to extend government spending through Dec. 3 and avert a shutdown, the measure now goes to the House of Representatives for a vote, which is expected to approve the measure, but the federal debt ceiling has yet to be lifted. See: What happens if the U.S. defaults on its debt? As the drama plays out on Capitol Hill, a total of 92 firms took part in the Fed’s Thursday reverse repo operation. The program, run out of the Federal Reserve Bank of New York, allows banks, government sponsored enterprises and some of the world’s largest investment firms a short-term haven to park cash, while earning 5 basis points overnight. Earlier in September, the Fed doubled the cap each counterparty can pledge to the overnight facility to $160 billion each. The program has grown in popularity in recent months as trillions worth of fiscal and monetary stimulus course through the U.S. economy and financial markets. The latest uptick in demand was not unexpected, however, with some Wall Street analysts forecasting in early August the surge, due to the shrinking Treasury-bill market, the typically volatile year-end period and rancor in Washington over government spending. U.S. stocks wobbled Thursday, the last day of September and the quarter, with the Dow Jones Industrial Average
down about 300 points at last check.