Its Starting: The Repo Market Is Failing?!
Eurodollar University
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Repo Market Failure and Banks' Hesitance to Engage in Higher Return Activities
This chapter explores the misconception that the repo market failure is solely a bank arbitrage, highlighting the broader issue at play. It discusses the decreasing forward interest rates leading to lower OAS, allowing banks to borrow from the Federal Reserve at a low rate while earning higher returns by holding reserves. The chapter also examines the increasing riskiness of the market, banks' hoarding of cash, and the decline in lending, signaling clear problems in the monetary system.
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