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NY Fed to Test Securities Program Exit Strategy

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The New York Federal Reserve Bank said it will in coming weeks test an exit strategy from its portfolio of more than $1trn of mortgage-backed and agency debt securities. The tests come in advance of any decision by  the Federal Open Market Committee to begin the exit process. The strategy employs triparty reverse repurchase agreements -- to be listed on the Fed's balance sheet -- where the Fed essentially lends out securities. These agreements are typically overnight sell and buyback deals with set interest rates, the term triparty references the presence of a third party arbitrator. However, specifics on the Fed transactions are not publically available. The Fed plans to conduct a round of small-scale, real-value transactions with primary dealers in a way that limits the material impact on the availability of reserves. The deals, to be marked to market, will involve relatively small aggregate amounts of outstanding transactions compared with the level of excess reserves. "Like the earlier rounds of testing, this work is a matter of prudent advance planning by the Federal Reserve," the NY Fed said in a statement Monday. "It does not represent any change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future." The tests will gauge the level of preparedness at the Fed, the triparty repo clearing banks and primary dealers. Write to Diana Golobay.

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