Odd Lots Why The Repo Markets Went Crazy, And Why December Could Be Even Worse
Nov 11, 2019
Zoltan Pozsar, a Credit Suisse strategist and former U.S. Treasury advisor, dives deep into the chaos of recent repo market turmoil. He explores why borrowing costs surged in September and discusses the lingering uncertainty about the financial system's stability. Pozsar highlights the crucial role of the repo market in maintaining liquidity and warns that regulatory constraints could lead to more upheaval as year-end approaches. Tune in for insights into how recent Federal Reserve actions are shaping market dynamics and what it all means for the future!
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Train Troubles
- Zoltan Pozsar's train to D.C. broke down as repo rates surged.
- He joked about the country's overnight funding and the Fed's delayed response.
Tapering's True Cost
- The September repo market issues were not a sudden event but a result of the Fed's tapering.
- Tapering removed reserves, leading to a liquidity crunch.
Reserves Explained
- Bank reserves are essentially deposits held at the Fed, analogous to individual deposits.
- Pre-crisis, banks could have negative reserve balances intraday, using Fed credit. Post-Basel III, banks must settle with existing reserves, causing reliance on reserves-rich banks.