The U.S. Federal Reserve, after pushing Wall Street firms since the financial crisis to reduce risk in the $2-trillion-plus short-term lending arena known as repo, has quietly become the market's biggest player.

Repo loans, technically called repurchase agreements, have been used for more than a century by Wall Street firms and traders to buy bonds with borrowed money, under a strategy designed to multiply returns. The market is so vital that Lehman Brothers' loss of repo financing in 2008 helped drive that firm into bankruptcy.

Now, the Fed has moved in, using a two-year-old program that allows it to borrow cash through repos from money-market fund operators like Fidelity and BlackRock (BLK) . Last month, the central bank's repo borrowings shot up to almost $600 billion, a 14-fold increase from September 2008.

While Fed officials have described the repo program as temporary, and a way to control short-term interest rates, experts worry the central bank's role won't diminish soon, and that in the meantime pricing in short-term lending markets is getting distorted. The money funds, for their part, have grown comfortable using the Fed as an easy place to park cash for a profit.

"I don't think you can talk about this market without talking abut the Fed," said James Tabacchi, CEO of South Street Securities, a New York-based brokerage that specializes in repos. "They are the 800-pound gorrilla in the room. They provide a lot of support."

In September, some 60% of all money-market fund repo deals backed by U.S. Treasuries were with the Fed, according to the Office of Financial Research. Prior to 2014, when the Fed set up its repo program, the biggest counterparties were European banks like Barclays (BCS) , BNP Paribas (BNPQY) and Credit Agricole (CRARY) .

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