Statement on the Release of the Tri-party Repo Infrastructure Reform Task Force's Final Report
The Federal Reserve Bank of New York's "Statement on the Release of the Tri-party Repo Infrastructure Reform Task Force's Final Report" says, "Earlier today [Wednesday], the Tri-Party Repo Infrastructure Reform Task Force issued a report describing the status of industry efforts to reform the tri-party repo market. While the Federal Reserve commends the Task Force for its efforts to achieve systemic risk reduction in this market, much work remains to be done. The tri-party repo market is an important part of the U.S. financial system. However, as observed during the recent financial crisis, the tri-party repo market's infrastructure exhibits significant structural weaknesses that undermine market stability in a stressed environment. The Federal Reserve was forced to take extraordinary policy actions beginning in 2008 to counteract the effect of these flaws and avert a collapse of confidence in this critical financing market. These structural weaknesses are unacceptable and must be eliminated. The Task Force was formed to develop options to address three fundamental areas of concern identified by policymakers at the Federal Reserve: (1) market participants' overreliance on intraday credit from tri-party clearing banks, (2) risk management practices that are vulnerable to procyclical pressures, and (3) the absence of an effective and transparent process for the orderly liquidation of a defaulted broker-dealer's collateral. The Task Force released a set of recommendations in May 2010 to modify industry operations and practices to sharply reduce the market's dependency on intraday credit provided by clearing banks. At that time, the Task Force indicated that the industry would complete the recommended operational changes in 2011. This goal was not achieved.... Despite these accomplishments, the amount of intraday credit provided by clearing banks has not yet been meaningfully reduced, and therefore, the systemic risk associated with this market remains unchanged." See also, ICI's weekly "Money Market Mutual Fund Assets."
