Repo Blowup Was Fueled by Big Banks and Hedge Funds, BIS Says

Re:Repo Blowup Was Fueled by Big Banks and Hedge Funds, BIS ... by SilasX on Monday December 09, 2019 @12:45PM (#21744638)

So, stupid question: what's the purpose of suppressing short-term interest rates like that? Isn't that a meaningful market signal that banks should be running in a way that's less dependent on loans from other banks, just as a higher price for fish correctly signals market participants to look for substitutes?

(Side note: as someone who "should" benefit from more expensive liquidity as a holder of a money market fund, I looked up the Vanguard Prime MMF, and it turns out it doesn't hold any repos[1], even though that's a valid asset class for MMMFs[2]...)

[1] https://investor.vanguard.com/mutual-funds/profile/portfolio...

[2] https://www.pimco.com/en-us/insights/investment-strategies/f...

>New SEC rules require that government money market funds hold 99.5% of assets in government-related securities, including Treasury bills, agency discount notes and repurchase agreements (repos).

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Re:Repo Blowup Was Fueled by Big Banks and Hedge Funds, BIS ... by wcoenen on Wednesday December 11, 2019 @10:29AM (#21763290)

Since the borrowers could sell the collateral instead, technically they aren't depending on these loans and they could stop using the repo market.

However, they would then 1) lose the yield on the bonds and 2) instead need to keep large amounts of money on some account and trust that the bank doesn't go bust. Bond holding is used as an alternative to deposits.

The government also doesn't want the repo market to shut down, because that means everybody dumps their gov bonds, since they wouldn't need them as collateral anymore. The dollar amount of outstanding repo contracts is measured in trillions so this would imply a catastrophic increase in the cost of borrowing for the government.

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