"NY Fed to Take More Direct Role in Repo Market"

I've complained many times that the risk of non-traditional bank runs in the repo market, a key factor in the financial crisis, is still present. As noted below in a quote from the NY Fed, the "systemic risk associated with this market remains unchanged." So it's good to see that the NY Fed is finally stepping in with oversight of this market after it waited for the industry to fix itself, and that didn't happen. But why did anyone think the industry would fix itself in the first place?:

New York Fed to Take More Direct Role in Repo Market, by Michael S. Derby, Real Time Economics: The bond market’s inability to reform the market where Wall Street goes to borrow and lend fixed-income securities is leading to more direct involvement from the Federal Reserve Bank of New York.

At issue is the state of the triparty repo market. This sector is the backbone of bond trading... And because the market is dominated by short-term activity, a loss of confidence in a particular firm can kill its access to credit and potentially kill the institution, which can, in turn, create problems for the broader functioning of financial markets.

The effort to repair the market came to a head Wednesday with the release of a report by the Tri-Party Repo Infrastructure Reform Task Force, a private industry group operating with the support of the New York Fed. The report was to offer the group’s final recommendations, but that was evidently more than participants could manage.

Although the task force has made recommendations to improve trading in the repo market, the implementation of them “will require more time and technical implementation than the Task Force originally estimated and will constitute a multiyear project,” the report said. ...

In a related release, the New York Fed was clearly disappointed by the lack of traction the industry’s effort at self-reform had achieved.

“Despite these accomplishments, the amount of intraday credit provided by clearing banks has not yet been meaningfully reduced, and therefore, the systemic risk associated with this market remains unchanged,” the New York Fed said in a statement.

As a result, the bank said it “will intensify its direct oversight” of the triparty repo market. ...

Oversight is one thing, taking action is another, so we'll see what the NY Fed actually does. But at least there's finally some chance of movement on this front.