FT on G30 Standing Repo Facility
The Financial Times writes, "US Treasury market needs urgent reform, warn former policymakers." The article states, "The $22tn market for US government debt risks being rattled by frequent bouts of dysfunction that threaten global financial stability unless urgent reforms are made to enhance liquidity, according to a group of heavyweight former policymakers. A consortium that includes former US Treasury secretaries Timothy Geithner and Larry Summers as well as retired central bankers such as the Bank of England's Mervyn King on Wednesday proposed sweeping changes to how Treasuries are traded, regulated and backstopped by the Federal Reserve. Their [Group of 30] report, which was also backed by Bill Dudley, the former president of the New York Fed, and Axel Weber, the Bundesbank president turned UBS chair, said the reforms were needed to ensure the biggest, deepest and most essential bond market is able to function smoothly -- especially during periods of acute stress." The FT adds, "One such proposal is for the Fed to establish a permanent facility, which would allow eligible market participants to swap Treasuries for cash at a rate that discouraged frequent use when markets are functioning normally without causing stigma when used at times of stress. That would help to limit demands for market liquidity when it is most scarce, as investors would have an alternative to selling their holdings, the G30 said. The group said that the 'standing repo' facility was the 'single most important near-term measure' that policymakers should adopt. Along with another facility designed for foreign counterparties, it has recently been endorsed by the Fed. The US central bank began sketching out potential designs at its June policy-setting meeting."
