Bessent's Call to Upsize Fed Facility Sparks Market Concerns
US Treasury Secretary Scott Bessent has called for an expansion of the US Federal Reserve's Foreign and International Monetary Authorities (FIMA) repo facility, which would allow Japan to access more funds to bolster its currency.
The FIMA facility allows foreign authorities to borrow up to $60 billion in short-term funds from the Fed by posting US Treasuries as collateral. Bessent has stated that expanding this facility would be a secure lending arrangement, similar to swap lines, and would provide Japan with more flexibility to intervene in the currency market.
However, some market watchers have expressed concerns that upsizing FIMA may not be risk-free, as it could tempt the market to test the resolve of Washington and Tokyo. Evercore ISI analysts have warned of possible market blowback, stating that focusing on a capped Fed repo facility could backfire by inviting markets to challenge the commitment of the US and Japan to strengthen the yen.
The FIMA facility has been little used since its launch in 2020, with only a brief surge in borrowing during market upheaval surrounding the collapse of Silicon Valley Bank. The Fed's website describes it as supporting 'the smooth functioning of financial markets more generally.'