The Fed built a place for the financial system to park spare cash overnight. It is called the overnight reverse repo facility.

Money funds and others lend cash to the Fed each night and get it back with interest the next morning.

The facility works like a shock absorber. It fills when cash is plentiful and drains when cash is needed elsewhere.

At its 2022 peak, the facility held about $2.5 trillion overnight.

By early 2025 it had drained toward a small fraction of that.

The cash left because Treasury bills and repo started paying more.

On March 19, 2025, the Fed also slowed the shrinking of its balance sheet.

It cut the monthly Treasury runoff cap from $25 billion to $5 billion, starting in April.

Three big pools hold the system's cash: bank reserves, the Treasury's account, and the reverse repo facility.

Money moves between them all the time. The facility is the loosest of the three.

When the Fed drained cash through its balance sheet, the facility emptied first and reserves barely moved.

That is why the runoff ran for two years without a cash crunch.

But the buffer is nearly gone now. The next drain falls on bank reserves instead.

Reserves are the cash banks must keep to settle payments and meet rules.

The first stress point is the level of reserves. Too low, and banks scramble for cash and short-term rates jump.

That is what happened in September 2019, when repo rates spiked overnight.

The second is timing. Tax dates and big bill settlements can pull cash out fast.

The third is the Treasury's rebuild after the debt ceiling, which will drain reserves further.

With the facility empty, there is less give in the system to absorb these hits.

The facility did its job. It let the Fed shrink its balance sheet by trillions without breaking cash markets.

That is a design that earned its keep.

What can break is smoothness once the buffer is gone. Rate spikes get more likely at month and quarter ends.

You can watch the gauges. The Fed posts reverse repo take-up every day.

It also reports bank reserve levels weekly, in the H.4.1 release.

The reverse repo facility was the release valve for a flood of cash, and it worked.

As it empties, the system loses its easy buffer, and pressure lands on reserves.

The next test comes at quarter-end and around the debt-ceiling rebuild. Watch repo rates and the daily reverse repo balance.