Liquidity & Balance Sheet
Federal Funds Purchased
Also known as Fed Funds Purchased
Federal Funds Purchased is overnight unsecured borrowing in the interbank market. The fed funds rate that the FOMC targets is the rate at which these borrowings clear.
Formula
Federal Funds Purchased are unsecured overnight loans from one bank's Federal Reserve reserve account to another's. They were historically the primary marginal funding source for short positions; the rise of secured repo and changes in Fed operating procedures have shrunk the unsecured fed funds market.
Why it matters
Although the fed funds rate is the headline policy rate, the unsecured fed funds market is a small fraction of bank wholesale funding today. Most banks rely on FHLB advances and repo for short-term funding. Banks with material fed funds purchased balances are typically community banks borrowing from correspondent banks.
How to interpret
Fed funds purchased above 5% of assets is unusual today and warrants attention to funding concentration. Most US banks carry de minimis or zero balances. A bank reaching for unsecured overnight funding may be approaching the limits of its secured borrowing capacity.
Thresholds
| Range | Label | Interpretation |
|---|---|---|
| 0% | None | No unsecured overnight reliance. |
| 0–2% | Low | Routine correspondent-bank activity. |
| 2–5% | Elevated | Material unsecured short-term reliance. |
| > 5% | Heavy | Unusual; investigate secured-funding capacity. |
Worked example
Frequently asked
Why did the unsecured fed funds market shrink after 2008?
Because Federal Reserve operating procedures shifted to a floor system with interest on reserves. With ample reserves, banks have less need to borrow unsecured overnight; the secured repo market handles most marginal funding.
Who lends in the federal funds market today?
Primarily Federal Home Loan Banks and GSEs. GSEs do not earn interest on Federal Reserve accounts and are willing to lend at slightly below the IORB rate, anchoring the effective fed funds rate.
Is fed funds the same as repo?
No. Fed funds is unsecured overnight bank-to-bank lending. Repo is secured short-term lending against collateral (Treasuries, agency MBS). Repo is much larger and is the actual marginal source of short-term wholesale funding.
Sources
- FFIEC Call Report Schedule RC, Line 14a
- Federal Reserve H.15 / Effective Fed Funds Rate releases
See Fed Funds Purchased across 4,335 US banks
BankRegReports ranks every FDIC-insured institution by Fed Funds Purchased, refreshed quarterly within 48 hours of FFIEC release.