The Federal Reserve confirmed on Monday that it had been testing a key tool for draining liquidity from the financial system – known as “reverse repos” – and might one day conduct such trades with counterparties other than its current group of so-called primary dealers.

In a reverse repo – reverse repurchase agreement – the Fed sells assets such as Treasury securities to dealers for cash, with an agreement to buy them back later at a slightly higher price. In the process, bank reserves are drained from the financial system.