Williams notes most non-centrally cleared bilateral repo transactions involving Treasury securities had zero haircuts according to OFR data.
“Meanwhile, in the NCCBR market segment, use of repo haircuts is fairly infrequent, with two pilot data collections in the NCCBR segment by the Office of Financial Research showing the majority of transactions involving Treasury securities had zero haircuts.”
Williams says TMPG recommends firms adopt repo risk management practices by June 2026, prioritizing material exposures.
“In terms of an implementation timeline, the TMPG is recommending that firms begin applying the repo risk management recommendations on a rolling basis, prioritizing their most material counterparty exposures and completing the process by June 2026.”
Williams suggests centrally clearing standing repo operations could improve participation and efficacy, noting other central banks moving this way.
“Centrally clearing SRPs would be one way to reduce such cost and thus could further improve counterparty participation and the efficacy of SRPs in curbing rate pressures and maintaining the stability of funding markets.”
Williams argues widespread use of haircuts for Treasury repo could enhance financial system stability during stress.
“In my view, widespread use of haircuts for Treasury repo could enhance financial system stability and support market functioning during periods of stress.”
Williams says sizeable Standing Repo Facility usage is fully expected and desirable when economically sensible.
“Given the criticality of those aims, it is desirable and fully expected that the SRF be used whenever it is economically sensible to do so.”
Williams expects Fed to reach ample reserves soon based on sustained repo market pressures.
“Based on recent sustained repo market pressures and other growing signs of reserves moving from abundant to ample, I expect that it will not be long before we reach ample reserves.”
Williams states Treasury repo market has over $8 trillion in daily average transaction volume.
“Given the size of the Treasury repo market—with over $8 trillion in daily average transaction volume—and its interconnectedness with other segments of financial markets, sound risk management is critical.”
Williams warns inconsistent risk management in Treasury repo could threaten market functioning if counterparties default.
“In the Treasury repo market, a lack of consistency and transparency in risk management practices could pose risks to market functioning if one or more counterparties were to default.”