【高级听力】（文末附视频）Repo: How Roughly $1 Trillion Moves Overnight

Repo: How Roughly $1 Trillion Moves Overnight

《文 末 附 视 频》

This may not be a word-for-word transcript.

Narrator: Take a look at this chart. It tracks how much banks and others pay for overnight loans using something called repurchase agreements. This is also known as the repo rate. These bumps right here on September 16th and 17th have caused a really big stir in the financial world. That’s because the repo market is a critical part of the financial system. It provides a lot of the grease that keeps the wheels spinning, meaning it provides the cash that financial firms need to run their daily operations. 

When the repo market chokes and cash stops flowing, trouble can reverberate through the economy. That’s what happened in September, and in response, the Federal Reserve had to step in to help, providing tens of billions of dollars to borrowers to keep the system cranking. In the weeks since this happened, experts have called the incident a technical malfunction, and banks, for their part, have said it could have been prevented. They’re blaming the rules that were put in place after the financial crisis – rules intended to keep the banking system from falling apart.

Imagine two people, Karen and Mark. Karen has $1000 and she’d like to earn some fast interest on her money. Mark has a stack of treasury notes but no cash, so he strikes a deal with Karen. One note for $100, but there’s a catch. Mark has to agree to buy that note back tomorrow for $101. The difference between the price of the note on day one and day two, that’s the repo rate. If everything works properly, Mark gets the cash he needs right when he needs it and Karen makes some fast money.

The repo market functions in the same way. You just have to replace the Karens with money market funds and other asset managers who are looking to make a little money without a lot of risk and replace the Marks with hedge funds, Wall Street traders, and banks who have a lot of assets but need cash on hand to fund their day-to-day trading.

In the repo market, Karens and Marks all over the financial system lend back and forth for short periods, often overnight, and they do this at an enormous scale. Usually, more than $1 trillion runs through it every day.

On September 16th and 17th when the rate spiked, the Karens were not willing to trade cash for securities at the usual rate, so the Marks who needed cash kept offering more and more and more until the Fed arrived with help.

When the Fed announced its surprise repo operations, people wanted to know, why did the Karens suddenly stop lending? Experts point to two financial deadlines that sapped cash out of the system on the same night, causing a crunch. September 16th was the cut-off for banks to submit their quarterly tax payments, so a lot of money that they might usually lend in the repo market was being sucked out of their accounts and deposited into the Treasury. September 16th was also the day that $78 billion of Treasury debt was scheduled to settle, which just means that another chunk of cash was being turned into securities on that day, too.

Now, some banks said the crunch was compounded by another factor – a rule put in place after the financial crisis to keep banks solvent. The rule, which is called Liquidity Coverage Ratio, or LCR, requires banks to keep a certain amount of reserves or cash on hold at the Fed at all times, among other things. The idea was to improve the banking sector’s ability to absorb shocks arising from financial and economic stress. You can see it on this chart. Since the crisis, banks have stockpiled cash in their reserve accounts. Their argument is that keeping these funds on hold makes it harder for them to lend out cash on a dime when money gets tight.

Now, for the Fed’s part, Chairman Jerome Powell dismissed the possibility of revisiting those rules.

Jerome Powell: If we concluded that we needed to raise the level of required reserves for banks to meet the LCR, we’d probably raise the level of reserves rather than lower the LCR.

Narrator: What he’s saying is that the Fed would rather provide the extra funds itself than lower those liquidity requirements for banks, and since that press conference, the Fed’s done just that. In October, it announced it would start buying short-term treasury debt at $60 billion a month and continue through at least June of 2020, which means there’s gonna be money to borrow even if the Karens stop lending again. Its aim is to boost reserves, allowing banks to stay liquid without violating the rule, and in doing so, to keep the wheels of the financial system spinning.

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