Repo Turmoil Lets Banks Pump Low-Risk Profits
- New rules and years of calm left lenders reluctant to rush in
- Now, as they relearn to stomach volatility, they’re profiting
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The turmoil that’s gripped repo markets this month, leaving hedge funds and small broker-dealers scrambling for cash, has turned into a stream of low-risk profits for some of the world’s biggest banks.
When the low-profile system for short-term secured lending sputtered for lack of funding, sending borrowing costs to the highest in a decade, banks flush with cash were slow to step forward, reined in by new rules and lacking traders with expertise. But behind the scenes, lenders such as JPMorgan Chase & Co. have begun offering more money, lured by much higher returns than they get parking it at the central bank, according to executives in the market.