Dow Jones on Repo Market
Dow Jones Newswires writes "New Worry in 'Repo': Just One Bank for $3.5 Trillion Market," which says, "Bank of New York's onetime sole rival in the business of clearing U.S. Treasurys and repos backed by them, J.P. Morgan Chase & Co., is exiting the business, prompting more than two dozen brokers to move to Bank of New York. Individual brokers' transitions have by all accounts been smooth. Yet many traders fret over the risks of having a single bank handle all clearing and settlement -- the process of completing trades and distributing funds according to contract -- in a short-term lending market estimated by the Treasury's Office of Financial Research at $3.5 trillion. Many worry that having all those transactions handled by just one clearing bank potentially exposes the world's safest bond market to threats ranging from mundane power outages to cyberattacks and terrorism." The article, which also appeared in Thursday's Wall Street Journal, continues, "In repos, or "repurchase agreements," lenders such as money-market funds make short-term loans to bond brokers, often using government bonds as collateral. The market has been targeted by the Federal Reserve for reform for nearly a decade. Those efforts picked up after shortcomings in repos were exposed in 2008, when lenders' retreat from Bear Stearns Cos. and Lehman Brothers Holdings Inc. played a role in accelerating the financial crisis. Troubles at those firms and others, driven in part by their exposure to subprime-lending losses and reliance on short-term loans to fund longer-term investments, helped pave the way for an updated repo market. A decade ago, many financial firms funded themselves "wholesale" by borrowing in the market overnight. Today, repo borrowings tend to be longer-term and backed by stronger collateral, such as Treasury securities rather than privately issued mortgage bonds."
