How to ensure financial firms have enough cash

MOST PEOPLELIBOR have—mercifully—not had to think about the money markets since the financial crisis, when obscurities such as briefly became part of the discussion. It is time once again to pay a bit more attention because New York’s “repo” market is not working as it should. Every day more than $1trn is borrowed and lent by financial firms through repos, which involve posting Treasury securities as collateral. The interest rate that borrowers pay ripples through the global financial system. Hence, if the repo market malfunctions, it matters.That is what happened in September, when rates briefly spiked as high as 10%; they should be much closer to the Federal Reserve’s target interest rate, which this week was cut to 1.5-1.75% (see ). The surge indicated that some financial firms did not have enough cash and were scrambling to get hold of more. Although repo rates have eased back since then, the underlying problem has still not gone away.