The repo market is gigantic and very few people on the outside know much about it. Right now, the salient point is that it is not functioning properly and the Federal Reserve is quietly engaging in emergency measures to keep it going. This article is a good explanation of what’s going on and what may be causing the repo market stresses. The article links to a Pater Tenebrarum article “Repro Quake – A Primer” that is technical but worth the read for those who want to delve further into the matter. The repo market’s troubles may end up being the proverbial canary in the coal mine for an impending financial crisis. From Mike “Mish” Shedlock at moneymaven.io:
What’s behind the ever-increasing need for emergency repos? A couple of correspondents have an eye on shadow banking.
Shadow Banking
- The shadow banking system consists of lenders, brokers, and other credit intermediaries who fall outside the realm of traditional regulated banking.
- It is generally unregulated and not subject to the same kinds of risk, liquidity, and capital restrictions as traditional banks are.
- The shadow banking system played a major role in the expansion of housing credit in the run up to the 2008 financial crisis, but has grown in size and largely escaped government oversight since then.
The above from Investopedia.
Image courtesy of my friend Chris Temple.
Hey It’s Not QE, Not Even Monetary
Yesterday, I commented Fed to Increase Emergency Repos to $120 Billion, But Hey, It’s Not Monetary.
Let’s recap before reviewing excellent comments from a couple of valued sources.
The Fed keeps increasing the size and duration of “overnight” funding. It’s now up $120 billion a day, every day, extended for weeks. That is on top of new additions.
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