Repos are back, and in a big way. The NY Fed is taking over the game, though I wonder if they didn't take over the game initially during the financial crisis. From the FT:
The Federal Reserve Bank of New York has emerged as the single largest player in an important segment of the short-term lending market that was at the epicentre of the financial crisis.
The Fed’s decision to quadruple its trading with government money market funds in the repurchase or “repo market” is a sign that the central bank is now engaging more directly with the shadow banking system at the expense of large Wall Street banks.
Historically, the repo market was where big banks pawned out their securities such as Treasury bonds to lenders including money market funds, insurers and mutual funds, in exchange for short-term financing. Now the Fed is stepping in to trade as well as it prepares to end its current near-zero interest rate policy.
Like the article says, the Fed is now becoming a dealer of last resort. I am not sure if I want to visit that casino much less be dealt any cards.Armed with a balance sheet of $4.3tn of bonds purchased during quantitative easing, the Fed is using what it calls its reverse repo programme, or RRP, to trade with money funds at a time when tough new regulatory standards have made such borrowing less attractive for the banks.
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| Dealer of last resort |
