Too big to lend? JPMorgan cash hit Fed limits, roiling U.S. repos

This is simply the combined result of the Fed reducing their inventory of bonds which reduces bank reserve accounts and the understandable desire for banks to put excess reserves to work at the highest rate they can with safety of principle. The Fed can handle this without limit.
 
Banjo said:
So all the roiling was essentially much ado about nothing. Thanks for clarification.
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Yes. Nothing here that should be particulary concerning at this point. There is no indication of unusual solvancy concerns among private financial instituions. The problem is very short term due to a temporarily inadequate supply of funds in the fed funds market. The Federal Reserve can handle such an occurance without limit. When banks loan they don't check their reserve position before they make the loan. They assume that any required additions to their reserve position will be borrowed via the funds or repo market . The Fed can assure that those monies are available to solvent institutions virtually without limit.* There are also backstops available to these markets as needed. If the funds rate should move out of the target range such a move will be very short lived. The Fed will respond immediately to bring the rate back into the target range.
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*it is credit, which is demand dependent, that determines the money supply. Any indirect influence the Fed may exercise on the money supply via, for example, the funds rate, pales by comparison.
 
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