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Why the U.S. Repo Market Blew Up and How to Fix It

Bloomberg business news
Repo Blowup Fueled by Big Banks and Hedge Funds: BIS

To keep markets running smoothly at the end of 2019, the U.S. Federal Reserve pumped half a trillion dollars into an obscure but crucial part of the global financial system that suffered a seizure several months ago. But what will it take to keep that funding market, known as repo, out of news headlines in 2020? Remedies from looser bank regulation to a permanent backstop at the Fed are being debated, even as views differ over what caused the ruckus in the first place.

The repo market is where high-quality securities are swapped daily for trillions of dollars of cash, making a wide range of transactions easier. Repo (short for repurchase agreements, which amount to collateralized short-term loans) jolted Wall Street in mid-September when the amount of cash available dropped just as the demand to borrow it jumped, driving interest rates sharply higher.