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(37,305 posts)
Wed Dec 28, 2011, 10:01 PM Dec 2011

Fed seeks to curb repo market risk


An industry task force sponsored by the US Federal Reserve is working on a plan to scale back systemic risk in the funding market at the centre of the financial crisis and to reduce trader dependence on JPMorgan Chase and Bank of New York Mellon .

The changes would be aimed at bringing greater automation to the $1.6tn tri-party repurchase, or repo, market but could increase financing costs for other banks.

In the repo market, banks pledge securities as collateral for short-term loans from money managers and other investors.

While the issue is technical, it raises questions both about the ongoing vulnerability of the two so-called clearing banks in the market, JPMorgan and BNY Mellon, and their power over the Wall Street community in general.Many officials at the Fed believe that such a role may not be appropriate for private institutions and that a public sector body may be more appropriate.

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