Why Banks Didn’t Lend to the Repo Market When Rates Blew Out: JPMorgan CEO Dimon
- Why Banks Didn’t Lend to the Repo Market When Rates Blew Out: JPMorgan CEO Dimon
by Wolf Richter, https://wolfstreet.com/
“Does that mean that we have bad markets?”
This still doesn’t show who or what triggered the fire in the repo market in mid-September when overnight lending rates more than quadrupled and briefly hit 10%, but it confirms who sat there and watched the fire and fanned it though they could have extinguished it.
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During the earnings call today, JPMorgan Chase CEO Jamie Dimon told analysts that the bank had $120 billion in cash on deposit at the Fed in the morning of those days, and that during the day, those deposits would fall to $60 billion as JPM would draw money out of that account for its daily business purposes, and that by the evening that cash balance would go back to $120 billion. “We have a checking account at the Fed with a certain amount of cash in it,” is how Dimon explained this.
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Banks earn interest on cash they deposit at the Fed. When the repo rates blew out in mid-September, the interest on excess reserves (IOER) was 2.1%. At the end of the FOMC meeting on September 18, the IOER was lowered to 1.8%. JPM could have made more money lending to the repo market at 5% or more.
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While this amount – fluctuating between $120 billion and $60 billion – was “still huge,” it wasn’t enough from a regulatory point of view to lend into the repo market, Dimon said.
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