The
repurchase or repo market now averages about $1.7 trillion. The
risk is that it’s cleared by only two major banks, Bank of New York
Mellon, and, to a somewhat lesser extent, J.P. Morgan Chase.
The banks manage the cash and securities involved and the temporary credit as clearing banks for short term transactions used by, for instance, money market funds, where daily transactions need liquidity.
But the activity is not regulated and the Federal Reserve bigwigs are musing about changing that. I do not find the lack of regulation a particular problem. There is a systemic risk here, of course, but any government-imposed risk would not be of any special help.
Usual, erratic emergency action would only make matters worse when time could probably heal matters. Students of 2008-09 take note. (See the Earl J. Weinreb NewsHole® comments.)
The banks manage the cash and securities involved and the temporary credit as clearing banks for short term transactions used by, for instance, money market funds, where daily transactions need liquidity.
But the activity is not regulated and the Federal Reserve bigwigs are musing about changing that. I do not find the lack of regulation a particular problem. There is a systemic risk here, of course, but any government-imposed risk would not be of any special help.
Usual, erratic emergency action would only make matters worse when time could probably heal matters. Students of 2008-09 take note. (See the Earl J. Weinreb NewsHole® comments.)
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