Group 1: Report Overview - The report focuses on the ON RRP tool, aiming to introduce what it is, how it works, and the possibility of China creating a similar tool [4][9] Group 2: ON RRP Definition and Function - The US ON RRP is an overnight reverse repurchase agreement where the Fed sells securities to eligible counterparties and agrees to repurchase them the next day. It sets the lower limit of the interest rate corridor and absorbs excess market liquidity [4][10] - The ON RRP rate is set by the Fed. When market liquidity is abundant and the inter - bank lending rate is lower than the ON RRP rate, institutions prefer lending to the Fed, preventing the interest rate from falling below the bottom line [10] Group 3: How ON RRP Works - In 2013, due to the Fed's large - scale balance - sheet expansion and the inability of the existing IORB to restrict non - bank financial institutions, the Fed introduced the ON RRP to prevent non - banks from lending at rates below the policy intention and pulling down short - term interest rates. Non - bank institutions, especially money market funds, are the main participants, with an average of 66% of ON RRP held by money market funds since 2014 [11] - From 2021 - 2022, after the Fed's large - scale QE to combat the pandemic, the ON RRP became the core tool for managing market interest rates during the excess liquidity period. Its scale grew from billions to over $2.5 trillion, absorbing excess liquidity and anchoring short - term interest rates at the ON RRP rate [11] - In 2022, when the Fed started QT, the ON RRP scale declined, acting as a buffer for liquidity consumption, slowing down the direct depletion of bank reserves and making the monetary tightening process smoother [12] Group 4: Possibility of China Creating a Similar Tool - The US ON RRP is a liquidity recovery mechanism for non - bank institutions in an environment of extremely loose liquidity and also serves as a buffer during liquidity tightening [13] - The Chinese central bank has shown increased attention to the liquidity stability of the non - bank system, having established two structural capital market support tools. There is a possibility of further enriching and improving the existing toolbox [13] - However, since China's liquidity is generally in a reasonable and abundant state, and the central bank focuses on precise policy implementation, there is little need to set up an ON RRP - like tool to massively withdraw liquidity. It is more likely to be a supplement to the existing interest rate corridor mechanism for more precise short - term interest rate guidance and liquidity adjustment during local liquidity fluctuations or specific periods [13]