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- Corporation tax day Sept 15 resulted in cash drain from money market funds
- Fed QE balance sheet is being reduced
- High quantity of Treasuries hit the market at this point in the funding cycle ($54 Billion)- raising demand for cash
- High LCR (Liquidity Coverage Ratio) requirement from big banks (JPM, Citi, Wells, BOA) hold 300+ billion dollars in cash (total held at Fed is $1.3 Trillion). This drains cash from short term lending market, especially since these big banks are dealers and market makers.
- Antidotes include a standing repo facility by the Fed, reduce target rates, be more nimble as Fed was caught flat-footed as developments in the early morning market left them scrambling.
- What role would DLT play in this? There are at least a couple of PoCs for Repos a. Broadridge b.<insert> <insert>
Suggested Antidotes:
- Be more nimble in the repo market FED (the market is an early morning one in New York as funding needs are expressed between 7:00 and 8:30 am) The FED is not setup to do this (not enough expertise, not enough traders, slower decision making process etc.)
- Longer "term repos" by the FED
- Start buying Treasuries or other assets again FED
- Target overnight rates to be made lower FED
- Standing repo facility FED
- Change regulation to require less HQLA ratio SEC etc.
- Involve smaller banks