Fed officials caution on bank risk

By Dow Jones newswires

Mr Rosengren said the vulnerability posed by short-term funding like repos is one of the "financial stability issues that still really scares me. " Large broker-dealers, some of which are owned by big banks, still rely heavily on potentially volatile short-term funding like repos to finance activities on behalf of themselves and their clients — and that funding may not be available in a crisis, he said. "Broker-dealers can experience significant funding problems during times of financial stress.

Regulators should consider forcing broker-dealers to bolster their capital levels if they rely too heavily on short-term financing or take other actions, such as limiting the extent to which brokers can use short-term repos "to finance long-term assets or high-credit-risk assets, " Mr Rosengren said.

The Wall Street Journal reported that Goldman Sachs, Barclays, and other large firms were reducing their roles as middlemen in the repo markets — a pullback that analysts and banks say could make it harder for hedge funds to borrow and give money-market funds fewer places to invest.

Read more here: Business Spectator


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