IRD — A Liquidity Crisis Hit The Banking System In September [and more]

Without a doubt, the graphs above are telling us that something “broke” in the banking system which necessitated the biggest injection of Treasury collateral in history into the global banking system by the Fed.

IRD
A Liquidity Crisis Hit The Banking System In September

ht The Automatic Earth

Also from The Automatic Earth

Bank Of England Warns Financial Institutions Over Commodities Exposure (Guardian)

Also

Glencore slashes zinc production and jobs

Former IMF chief economist backs 'people's QE'

Sober Look — The Fed to release $600bn of treasuries into the reverse repo market at year-end

Huge demand for reverse repo.

Sober Look
The Fed to release $600bn of treasuries into the reverse repo market at year-end

Izabella Kaminska — What’s the problem with a scarcity of safe assets?

Non-essential, but sort of fun explaining the Zero Hedge head space.

Dizzynomics

What’s the problem with a scarcity of safe assets?

Izabella Kaminska

See also the followup, A no-debt society?

John Jansen — Back to the Future with Reverse Repo

Victoria McGrane and Jon Hilsenrath penned a piece about a new tool for controlling short term interest rates. I do not think it is new;it is just a wrinkle on a tool very common when I worked at the Open Market Desk. In those days we called these transactions “matched sales”.  I commented on the article at the comments section of the WSJ. Here are my comments:

There is nothing novel about this as in days of yore we called this a matched sale. In those days the Open Market Desk (when necessary) would sell a very short dated T bill from its portfolio and simultaneously agree to repurchase it the next day. The dealer community got T bill collateral and the Open market Desk got “funding”. The desk also paid interest on that overnight funding and that level of interest was an important indicator of Fed policy to market participants.

The entire process is Money and Banking 101. When the Fed takes money from the street there is less money sloshing through the system as the Fed in the parlance of the day had “drained” reserves from the system. That drain would place upward pressure on the funds rate and other short rates. So this transaction was quite regular and familiar for many years through the 70s 80s and 90s….

Across the Curve

Back to the Future with Reverse Repo

John Jansen