Currently, permanent OMOS are used in a traditional role, the purchase of securities, to manage the supply of reserves in the face of the expected increase in non-reserve commitments of the Federal Reserve. In October 2019, the Federal Reserve announced that it would purchase Treasuries, initially at a rate of about $60 billion per month, at least until the second quarter of 2020, in order to maintain sufficient reserve balances over time above or above the level that prevailed at the beginning of September 2019. In the absence of these purchases, the level of reserves would decrease significantly due to the previous and expected increase in non-reserve liabilities such as the currency in circulation. This measure is a purely technical measure intended to support the effective implementation of the FOMC monetary policy and does not constitute a change in monetary policy. For more information, see www.federalreserve.gov/newsevents/pressreleases/files/monetary20191011a2.pdf and www.newyorkfed.org/markets/treasury-reinvestments-purchases-faq.html. Permanent OMOS are also used to implement FOMC policy, reinvest asset repayments on agency and MBS debts, and crush cash bills maturing at auction. In addition, as part of prudent planning, THE FRBNY Trading Desk occasionally conducts small-value exercises, including direct purchases and cash sales, direct purchases and sales of MBS and MBS-Coupon-Swaps to test readiness. The Federal Reserve operates OMOS in domestic markets. OMOs may be permanent, including direct purchase and sale of treasury bills, government-sponsored debt securities (GSEs), as well as federal authorities and GSE MBS; or temporarily, including the acquisition of these securities under resale contracts and the sale of these securities under repurchase agreements. The enforcement power of OMOs is conferred in accordance with Section 14 of the Federal Reserve Act and the range of securities that the Federal Reserve has authorized to buy and sell is relatively limited. OMOS are carried out by the FRBNY Trading Desk, which acts as an agent for the FOMC.
FRBNY`s traditional counterparties for OMOs are the main traders with which FRBNY negotiates the U.S. government and selects other securities. Since 2009, FRBNY has designated additional counterparties for certain OMO programs. Pension transactions are generally considered to be a reduction in credit risk. The biggest risk in a repo is that the seller does not maintain his contract by not repuring the securities he sold on the due date. In these cases, the purchaser of the guarantee can then liquidate the guarantee in an attempt to recover the money he originally paid. However, the reason this is an inherent risk is that the value of the warranty may have decreased since the first sale and therefore cannot leave the buyer with any choice but to maintain the security he never wanted to maintain in the long term, or to sell it for a loss. On the other hand, this transaction also poses a risk to the borrower; If the value of the guarantee increases beyond the agreed terms, the creditor cannot resell the guarantee.