Fed Testimony on Tri-party Repo Market
On Thursday, Matthew J. Eichner, Deputy Director, Division of Research and Statistics at the Federal Reserve testified on the "Tri-party Repo Market Before the Subcommittee on Securities, Insurance, and Investment, Committee on Banking, Housing, and Urban Affairs, U.S. Senate." He said, "Chairman Reed, Ranking Member Crapo, and members of the subcommittee, thank you for inviting me to appear before you today to discuss the triparty repurchase agreement (repo) market. The Federal Reserve has a strong interest in the smooth functioning and resiliency of this market for several reasons. First, the market serves as a tool for cash and liquidity management as well as for short-term borrowing for a wide range of financial intermediaries, including money market funds, insurance companies, banks, and securities dealers, all of which play an important role in supporting the savings and investment programs of households, small businesses, and nonfinancial corporations. Second, a number of entities subject to direct prudential supervision by the Federal Reserve are significant participants, including the holding companies of the two clearing banks, JPMorgan Chase and BNY Mellon, as well as many other bank holding companies. Finally, triparty funding materially supports the depth and liquidity of a number of critical markets, including those for U.S. government securities in which U.S. monetary policy is executed. In light of the importance of the triparty repo market, the Federal Reserve has been and is committed to working with market participants and other supervisory and regulatory organizations to enhance the market's resiliency. During the crisis, it became apparent that the design of the market's infrastructure to settle transactions, in particular, had fundamental flaws that could lead to serious instability during periods of market stress. Some significant progress has been made subsequently by market participants to address these shortcomings. The triparty repo market is now smaller than its peak and in general funds higher-quality collateral than it did prior to the crisis. However, not as much progress has been made--or made as quickly--as we believe is warranted given the seriousness of the situation, and certain clear vulnerabilities remain. The Federal Reserve continues to be fully engaged on a number of fronts to promote measures that will further mitigate these risks." See also, Dow Jones' "Fed Official: FSOC Could Act on Triparty Repos".
