FRB: Testimony on the Tri-Party Repo Market before the Senate Subcommittee on Securities, Insurance, and Investment

In this testimony, Matthew Eichner (Deputy Director of the Fed's Division of Research and Statistics) covered the primary reasons why the smooth functioning and resiliency of the U.S. Tri-Party Repo Market is a priority of the Federal Reserve. Then, more generally, he addressed:

• Tri-party repos and the financial crisis;
• The efforts of the Tri-Party Repo Infrastructure Reform Task Force;
• Federal Reserve use of supervisory authorities; and
• The problem of Fire Sales.

Eichner noted that the Federal Reserve believes supervisory efforts will yield substantial progress in "eliminating the reliance of the tri-party repo market on intraday credit . . . and in improving risk-management practices across a range of market participants." He went on to note that a challenge that remains is the development of a process to liquidate the collateral of a defaulting dealer that would operate reliably in the context of a settlement system organized around clearing banks. [SL Comment: The dangers posed to the financial system by the operation of the tri-party repo system has been one of the consistent themes of recent regulatory pronouncements as to required improvements to reduce systemic instability. See, e.g., recent recent report of FSOC.

View testimony in full here (links externally to FRB website).