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9/21, 5:32 AM (Source: TeleTrader)
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NY Fed looking at factor of distribution in cash crunch

The liquidity shortage this week, which translated into a spike in interbank interest rates and prompted an intervention from policymakers for the first time since the financial crisis, could be the result of the concentration of reserves "in a few institutions," according to officials from the Federal Reserve Bank of New York. John Williams, the chief of the central bank's subsidiary which conducts the open market operations, claimed the mechanics in cash movement have changed, the Wall Street Journal reported.

The Fed "supports market functioning" with the repo auctions, he added.

The idea is, after costs of short-term repurchases touched a record just below 10%, that the total level of cash parked at the central bank is one thing and that its distribution is a different matter, according to Lorie Logan, who oversees the portfolio. On September 16 in the morning, the reserves seemed above the required minimum, she added and claimed the system is "definitely stickier" than earlier thought. The executive stressed the unknowns about what would happen in a strong disturbance.

Breaking the News / IT