Big banks and hedge funds fuelled US repo market turmoil, says BIS
Bank for International Settlements says it would have been logical for banks to pour cash into repo to get 10% returns
Washington — The September mayhem in the US repo market suggests there is a structural problem in this vital corner of finance and the incident was not just a temporary hiccup, according to a new analysis from the Bank for International Settlements (BIS).
This market, which relies heavily on just four big US banks for funding, was upended in part because those firms now hold more of their liquid assets in Treasuries relative to what they park at the Federal Reserve, officials at the Basel-based institution concluded in a report released on Sunday. That meant “their ability to supply funding at short notice in repo markets was diminished”...
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