Uh-Oh! Financial Squeeze on Banks Tightened Again on Wednesday

Oct. 16, 2019 (EIRNS)—In the IMF’s new “Global Financial Stability Report October 2019,” the senior IMF officials responsible for it, Tobias Adrian and Fabio Natalucci, warn that “A sharp, sudden tightening in financial conditions could unmask these [corporate debt bubble] vulnerabilities.”

That “sudden tightening” became visible Sept. 16 in the overnight repurchase (“repo”) interbank lending market in the United States banking system. And on Oct. 16, the emergency liquidity lending operation started on Sept. 17 by the New York Federal Reserve Bank, had more liquidity demand from banks than it could meet. This is the first time this has happened since Sept. 24, and was not supposed to recur. The banks’ demand for overnight loans reached $80.35 billion, against the New York Fed’s lending limit of $75 billion in overnight “repo” loans.

This means that in addition to notable hedge fund liquidations which have been happening in recent weeks, one or more banks remain “liquidity-constrained” in spite of constant injections.

These repo lending operations have now been extended for the fourth time, now “at least until January 2020.” On Oct. 17 there will be offered: overnight liquidity loans, $75 billion; two-week loans, $35 billion; and outright purchases of securities by the Fed, called “not quantitative easing” at Fed insistence, $7.5 billion.