Federated Investors' "Month In Cash" features "FDIC throws curve to already challenging cash market", which says, "Just when it seemed as if conditions in the cash market couldn't get any more challenging, they became a little more challenging. Due to a regulatory change that effectively increased the amount of bank capital subject to FDIC assessment charges, interest rates on repurchase agreements -- a staple of overnight funding—cratered early in the month as the amount of repo-eligible collateral in the market dropped sharply. In changing its insurance assessment base, the FDIC had sought to shift more of the cost onto larger financial institutions. Though it had been widely assumed that big banks would reduce their participation in the repo market to avoid the expanded fee schedule, similar moves by many smaller institutions had a greater impact than anticipated, sending repo rates plunging from the high-teens at the end of March to the low-single digits barely one week later. In fact, the rate on some government-collateralized repos dropped to a single basis point early in the month. Given that cash managers need an allocation to overnight securities to meet daily liquidity requirements, net yields were adversely affected. By mid-month, market participants had adjusted to the super-low repo yields, in some cases shifting funds into overnight agency discount notes and Treasury bills as well as into overnight commercial paper and overnight CDs. Still, when an important component of any market sustains such a meaningful change in its supply-demand dynamic, most sectors of that market are usually impacted as well. In this instance, cash yields were further depressed by the secondary effects of the Federal Reserve's ongoing round of quantitative easing, as well as the end of the Treasury Department's Supplementary Financing Program as the debt ceiling approaches. Though repo rates had rebounded to the high single-digits by month end, the impact on cash yields was significant. Overall, the one-month, three-month and six-month London interbank offered rates (Libor) fell 3 basis points each to 0.21%, 0.27% and 0.43%, respectively, while 12-month Libor eased 2 basis points to 0.76%."
