action by the Federal Reserve to restrict the supply of funds (reserves) banks have available to lend. The Fed does this by selling securities to dealers and simultaneously agreeing to buy back those securities at a future date. Selling securities drains reserves from the banking system because dealers have to take out bank loans to finance their purchases.
Matched sale-purchase transactions usually have maturities of seven days or less, and are executed by the System Desk at the Federal Reserve Bank of New York, which carries out the monetary policy directives of the Federal Open Market Committee. The System Desk accepts dealer bids to buy securities, usually Treasury bills, until sufficient reserves have been absorbed. A matched sale-purchase agreement is the opposite of a repurchase agreement, which adds reserves.
