On Wednesday, the New York Federal Reserve (NY Fed) restricted counterparty standards for its reverse repurchase program (RRP), a move that could prevent stablecoin issuer Circle from obtaining a Fed loan, CoinDesk reported.
According to a press release from the Federal Reserve Bank of New York, funds "organized for a single beneficial owner" registered with the U.S. Securities and Exchange Commission (SEC) as "2a-7 funds" "will generally be considered unqualified." The Circle Reserve Fund appears to fall into this category. It is reported that Circle has placed approximately $25 billion in short-term U.S. Treasury reserves in a customized fund called the Circle Reserve Fund managed by BlackRock. According to Circle's earlier press releases and documents submitted by the SEC to the fund, the Circle Reserve Fund is only for Circle's use and is registered as a "2a-7" government money market fund.
The RRP allows selected counterparties (such as money market funds, banks) to provide overnight loans to the Federal Reserve at a fixed interest rate (currently 4.8%). Although the tool was originally created as a stabilization tool for the financial system, it has become an attractive tool to earn high returns with minimal counterparty risk. Currently, the program's funding reaches nearly $2.3 trillion.