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October 8, 2013

US regulators look at ‘time out’ for repo

Faced with an unruly child, an exasperated parent will often impose a “time out”.

That is one strategy some think could help calm the next major episode of a bank running into trouble in the “repo market”, where financial institutions pawn their assets in exchange for trillions of dollars’ worth of short-term loans.

The financial “time out” was one proposal from a Federal Reserve Bank of New York conference last week attended by leading players in the $2tn tri-party repo market, so-called ground zero for the runs on Bear Stearns and Lehman Brothers in 2008. Others include wresting control of the tri-party market away from the two banks which currently dominate it: Bank of New York Mellon and JPMorgan Chase.

In the five years since the crisis, regulators have endeavoured to strengthen the workings of tri-party repos by weaning the industry off intraday credit provided by BNYMellon and JPMorgan, who help facilitate repo agreements in the wider market.”


Read full Financial Times article here

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