JPMorgan Chase and the Repo Crisis

Oct. 2, 2019 (EIRNS)—Everyone has been asking just which banks were so short on cash that the entire interbank lending market seized up at the end of September, forcing the Fed to jump in with their (ongoing) emergency repo operations. The Fed of course doesn’t report which banks came knocking at their door. But Reuters published an article Oct. 1 which pointed at JPMorgan Chase as being at the center of the mess.

Reuters reported that “JPMorgan Chase & Co has become so big that some rival banks and analysts say changes to its $2.7 trillion balance sheet were a factor in a spike last month in the U.S. ‘repo’ market, which is crucial to many borrowers.” What happened is that from January to June 2019, JPMorgan Chase reduced its cash on deposit at the Fed by 57%, or $158 billion. This accounted for about a third of the drop in all banking reserves at the Fed during this period. Bank of America reduced its balance sheet with the fed by 30%, or $29 billion.

Reuters quoted an unnamed “executive at a competing bank” who called the shift by JPMorgan Chase “massive.” They ascribe it to JPMorgan Chase’s need to meet “sudden demands by corporate depositors and to meet government requirements for reserves on checking account deposits.”

Then Reuters did its de rigeur whistling past the graveyard: “While not seen as a sign of distress as it was during the collapse of Bear Stearns and Lehman Brothers in 2008, the spike [in repo rates] did prompt the U.S. Federal Reserve to promise to lend at least $75 billion each day until Oct. 10 to relieve the pressure.... Hedge funds, for example, use it [the repo market] to finance investments in U.S. Treasury securities and banks turn to it as op