On the last day of the most recent quarter — when usage surged to an all-time high of $1.6 trillion — the post with the screenshot of the results generated  about 2,000 comments.

Theories Around Reverse Repo
Here are just a few of the theories that have been floated in recent months:

According to a user who goes by “snowlock27,” banks are not lending, nor investing their excess cash. Instead they are parking it at the reverse repo facility because “they know something’s getting ready to happen.”  Other commenters espouse a similar theory, that institutions aren’t putting cash to work in stocks because they fear an upcoming crash.

“Callingallnerdz” said hedge funds are overleveraged and if/when there’s a market crash, their collateral will fall, resulting in margin calls and requirements to close short positions that will cause shares of GameStop to “finally moon.”

Others, including “akatherder,” have said if demand for the RRP reached $1.3 trillion, it would cause a “reshuffling,” per “repo market God” Zoltan Pozsar, a strategist at Credit Suisse.  As “googy_boogey” put it: “The big number to aim for was 1.3 trillion when someone important said that was when s--t would get bad but it just keeps going up.”

The Pozsar theory stems from a note the analyst wrote at the beginning of July, in which he said usage at the Fed’s facility could rise to $1.3 trillion by the end of August as money-market funds rotated out of Treasury bills in favor of the higher-yielding RRP.

That was realized in September when the balance at the RRP reached that level. Where Pozsar was wrong was the idea that either the higher yields available from the Fed's facility or from Treasury bills would pull money away from the banking system and bring reserve balances down below $3.5 trillion, thus sterilizing the effects of the Fed’s quantitative easing.

“That was a wrong view,” Pozsar said in an interview. “If that’s the stuff they’re running with, I think it’s time to move on. When facts change and things don’t move the way they thought they would, you get out of a position and move on.”

Still, even as Reddit users like Tim, who has more than 20 years of experience in the repo market, try to dispel some of what he calls the “tinfoil hat conspiracy theories,” participants in the discussion tend to chalk it up to criminal behavior on the part of banks.

Except the banks aren’t even the primary users of the RRP. At the end of the most recent quarter, money market funds accounted for $1.439 trillion of the record $1.605 trillion parked at the Fed’s facility, according to the Office of Financial Research data.  The remaining $166 billion likely came from government sponsored enterprises and not banks. That’s because GSEs cannot earn any yield on their deposits parked at the Fed, whereas banks can earn 0.15% via the interest paid on reserve balances.