The Federal Reserve could better police the shadow banking system by using a new financial tool created to help it wind down emergency monetary easing, says a new US government report.
The central bank has been testing a so-called reverse repo programme that will see it lend out securities from its vast portfolio of assets to money market funds. This enables the Fed to drain money from the financial system and better control short-term interest rates.
It also means that the central bank is playing a much larger role in a key shadow banking market, which it could use to better govern this opaque area of the financial system.
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