Boston Fed Chief Warns of Dangers to Repo Market

Wed, August 13, 2014

The New York Times

Wall Street banks continue to rely for billions of dollars in borrowing on a market that dried up suddenly in 2008, sending shock waves through the financial system and the wider economy.

Since the crisis, some steps have been taken to shore up the potentially unstable debt market, known as the repo market. But on Wednesday, Eric S. Rosengren, president of the Federal Reserve Bank of Boston, became the latest prominent regulator to call for a more ambitious overhaul of the repo market. In particular, he suggested that financial institutions making large use of repo borrowing should maintain higher levels of capital.

...Even so, the new rules are prompting broker-dealers to make significant changes to their trading operations, debt market experts say.

“It’s not creating particular strain or stress right now, but there are a lot of uncertainties about how the structure of the markets will evolve,” said Lou Crandall, chief economist at Wrightson ICAP.