Elizabeth Warren Breaks the Silence on the ‘Repo’ Crisis

Oct. 22, 2019 (EIRNS)—Sen. Elizabeth Warren (D-MA) wrote a public letter to Treasury Secretary Steven Mnuchin Oct. 18, breaking the strange silence of American elected officials and media over the liquidity crisis in the interbank market escalating since Sept. 16. The letter is the counterpole to former Bank of England Governor Mervyn King’s demand on Oct. 19 that the U.S. Congress remove post-2008-crash regulations on the big banks and the Fed, or face “financial Armageddon.”

Warren’s letter began by demanding that Mnuchin explain what is going on, that is causing the banks to need tens of billions of liquidity injections daily from the Fed.

As she sent it last week, the banks’ liquidity hole kept getting bigger. On Oct. 22, Tuesday morning, day 37 of the crisis, total demand from the banks for Fed liquidity loans reached a new high of $117 billion, while the New York Fed was offering a limit of $110 billion between its overnight and its two-week repurchase loan operations. The same morning, the New York Fed bought $7.5 billion in securities from the big banks—its resumed quantitative easing operation—but the demand for those purchases was 5.5 times that, at $41.5 billion.

The second point of Warren’s letter tried pre-emptively to attack the same panic that Mervyn King was ginning up. King may have been demanding that the “bail-in” rules imposed across Europe be replaced by a return to bailouts by central banks including the Federal Reserve. Warren’s letter, on the other hand, demanded to know whether, in the words of a Sept. 18 Reuters wire, “Big U.S. banks are using the recent chaos in short-term funding markets as an opportunity to pressure the Federal Reserve to ease liquidity requirements they have long despised.”

JPMorgan Chase CEO Jamie Dimon claimed on Oct. 19 that those regulations were causing an interbank liquidity crisis. Warren’s statement describing her letter said, these rules were “imposed these rules after the 2008 crisis to ensure that banks have enough cash on hand to meet their obligations in the event of another market crash.”