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Tuesday, February 28, 2006

More Baskets for the Eggs

The government securities market is dependent upon just two banks and that worries the Fed:

Fed in call for ‘stand-by’ Treasuries bank, by Jennifer Hughes, Financial Times:  The US Federal Reserve has asked Wall Street dealers to develop a “stand-by” bank that would step in if one of the two leading Treasuries clearing banks encountered problems. The Fed and the US Treasury depend on the Treasuries securities market to implement monetary policy and fund the US government. But the market, in which $545bn is traded daily, depends on two banks, JPMorgan Chase and Bank of New York, to clear its trades. This situation concerns regulators. Don Layton, who retired recently as vice-chairman of JPMorgan Chase and will lead the project, said: “If one of these two had troubles of any kind, literally half the government securities market would not be able to function...” ... The stand-by facility, provisionally called “NewBank”, is designed to come into play only if there is a loss of market confidence in one of the clearers, and dealers became wary of clearing trades through it. ...

    Posted by on Tuesday, February 28, 2006 at 12:06 AM in Economics, Financial System | Permalink  TrackBack (0)  Comments (5)

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