- 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.
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.
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.
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.