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Everbody knows that USA repo market is shaken in mid the September 2019 (exactly 16-17 September ). There are a lot of rumors, ideas and comments on this issue. I don't find real reason of this turmoil however I found how FED decreased repo market rate to the normal level with repo auctions.
These are my arguments.
The Fed undertakes repurchase
agreement operations with primary dealer (in which the Fed purchases Treasury
securities from primary dealer with a promise to buy it back on a specific
date). Dealer does not have account in the FED and this transaction is realized through the some custodian bank. FED send the reserves to the custodian bank of dealer and this bank creates deposits for dealer.
FED
|
|
Assets
|
Liabilities
|
+ Treasury
Bill
|
+ Bank Reserves
|
BANK
|
|
Assets
|
Liabilities
|
+ Bank
Reserves
|
+ Deposits
|
DEALER
|
|
Assets
|
Liabilities
|
- Treasury Bill
|
|
+ Deposits
|
My arguments are as follows:
FED's repo auction eased the
repo market with 2 different process
a- FED bought
collateral (securities) from dealers
b-FED injected to the liquidity (as
deposits) to the repo market.
Sincerely
Dr. Engin YILMAZ
Turkey
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