Repo Blowup Was Fueled by Big Banks and Hedge Funds, BIS Says
- Banks couldn’t quickly fund market when rates spiked: report
- Hedge funds ‘compounded the strains’ in vital part of finance
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The September mayhem in the U.S. repo market suggests there’s a structural problem in this vital corner of finance and the incident wasn’t just a temporary hiccup, according to a new analysis from the Bank for International Settlements.
This market, which relies heavily on just four big U.S. 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 Sunday. That meant “their ability to supply funding at short notice in repo markets was diminished.”