"FDIC Rule Jolts US Short-Term Lending Markets"
"FDIC Rule Jolts US Short-Term Lending Markets" writes Dow Jones. The article says, "A new rule intended to strengthen oversight of the banking system in the wake of the financial crisis jolted U.S. short-term lending markets on Monday, raising anxiety about higher borrowing costs in the broader economy. The rate for some Treasury notes turned steeply negative in the securities repurchase, or repo, market, on Monday. Many market participants including dealers had to pay dearly to obtain Treasurys. If that persists, it could hurt money market funds and their investors by reducing the rates of return such funds can earn in short term lending markets. So far, the tensions in the markets have been mild compared to the 2008 financial crisis, when the money market essentially seized up. But some market participants cautioned that inefficient functioning of the short-term lending markets, perceived widely as the oil that greases the broader economy, could hurt liquidity in the Treasury market and push up bond yields. That would raise the borrowing costs for U.S. consumers, businesses and the federal government." It continues, "The rule, which the Federal Deposit Insurance Corporation implemented on April 1, pushed U.S. banks to refrain from lending out their Treasury holdings, which has caused a broad supply squeeze in overnight repos. Banks and companies use the repo market to borrow either Treasurys or cash for trading, investments or to fund short-term obligations." Dow Jones quotes Ted Ake of Societe Generale, "The FDIC's rule and the Dodd-Frank bills are causing unintended consequences." See also, CNBC's Blog "Crescenzi: The House of Pain -- The Money Market" and WSJ's variation of the above Dow Jones story, "New Fee Shakes Up a Lending Market".
