The New York Federal Reserve will continue overnight repurchase operations through October as it seeks to quell market instability from earlier this week.
Short-term rates in the "repo" market spiked overnight Monday amid a shortfall in funding stemming from a variety of factors. The Fed responded with a series of liquidity injections aimed at preventing further capital droughts.The repo market provides banks the short-term funding they rely on to operate. Normally, the process works smoothly but liquidity shortfalls can gum up the works and, in the worst case, can cause financial crises.
Following the Oct. 10 operation, the New York Fed's trading desk will continue to conduct repo offerings "as necessary to help maintain the federal funds rate in the target range, the amounts and timing of which have not yet been determined." The Federal Open Market Committee earlier this week cut its benchmark interest rate to a target range of 1.75% to 2% and reduced the interest on excess bank reserves to 1.8%. The IOER cut was aimed at providing a lower guardrail for the fed funds rate and to discourage banks from holding excess reserves at the Fed.
The real question. What would have happened of the fed did not inject the money?
Sounds like everything is under control.
Banks are either insolvent or they are short of cash. BankFailureFriday
Markets must be very healthy