There’s no indication that the Fed will consider loosening its requirements on banks to shore up the repo market. Instead, the central bank appears to prefer to do everything itself, abruptly reversing course on the size of its balance sheet and increasing the amount of reserves. St. Louis Fed President James Bullard said on Tuesday that a standing repo facility would be a sensible “endgame” to prevent more bouts of extreme volatility in funding markets.
A standing repo facility at the Fed opens its balance sheet to potentially unlimited liability. That is the primary reason it has relied on the banking sector to provide liquidity historically and it is a testament to just how far the Fed is willing to go in deploying extraordinary liquidity measures.Click HERE to subscribe to Fuller Treacy Money Back to top