- A Clueless New York Fed Is Examining Why Banks With Excess Cash Failed To Halt Repo Panic
by Tyler Durden, https://www.zerohedge.com/
When it comes to occasional (or chronic) dollar shortages, and the plumbing of the overnight lending market, which as everyone knows suffered a spectacular heart attack early this week when the overnight repo rate soared to 10%, the New York Fed and its open markets desk, is the authority on any potential plumbing blockages. Yet it now appears that the most important regional Fed when it comes to maintaining market stability, is just as clueless as the rest of us as to why the repo market froze up. sending funding rates to never before seen highs.
In an interview with the FT, New York Fed president John Williams, who earlier this year unexpectedly fired not only the head of the NY Fed’s markets desk, Simon Potter, arguably the most important trader in the world, manning the world’s most important trading desk but also the second most important person at the NY Fed’s “Plunge Protection Team”, the head of the Financial Services Group, Richard Dzina, said that the New York Fed is examining “why banks with excess cash failed to lend to the overnight money market, following a week that revealed cracks in the US’s financial plumbing.”
Specifically, Williams questioned the hesitancy of the large, liquid banks, saying “the thing we need to be focused on today is not so much the level of reserves [held at the Fed]. It’s how does the market function.”
What is troubling about that statement is that it is precisely the level of reserves that the New York Fed should be focusing on – after all, that would justify the repo deep freeze as it has now been abundantly clear that the US financial system will need about $400BN more in reserves, but not how the market functions: if anything, that’s the one thing the NY Fed should know by now; yet the fact that the career economist Williams admits that the Fed is clueless about the market plumbing, is extremely concerning.