We can finally close the book on the "mystery" (if there ever was one) behind the Fed's fixed-rate reverse repo operation.
Yesterday, when we noted that the total notional of the most recent 1 Day reverse repo operation was a whopping $183.3 billion, we made a modest prediction, knowing full well that today would be April 30, better known as month end, and even better known as a time when every bank has some huge, undercapitalized windows to dress.
Reverse Repo surges to $183.3 billion. Must be almost month end window dressing time - tomorrow should be well over $200 BN
— zerohedge (@zerohedge) April 29, 2014 [3]
It was, indeed, well over $200 BN. In fact, it was $208 billion, the second highest ever.
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And sure enough, watch it crash to just over $100 billion tomorrow, now that a new month will have started and banks no longer need to appear quite so healthy.
So step aside any sophisticated claims that the Fed's reverse repo is a means to extract liquidity when the time to raise rates finally comes: all this latest "tool" in the Fed's arsenal is, is nothing more than a Fed-mandated and endorsed mechanism with which the banks can fool regulators and investors that they are in a far healthier condition than they really are.
And judging by the humiliating episode involving Bank of America's made up numbers that punked the Fed into believing America's most insolvent TBTF bank was healthy enough to give be billions to investors, one of the parties most "confused" by what the RRP does, is the Fed itself.