Bank global markets interview questions

The Fed’s approach to fixing tri-party repo is to work with Wall Street firms toward a solution.  In September 2009, the New York Fed formed a task force of JP Morgan, Bank of New York, and giant repo borrowers and lenders to study ways to reduce the potential for systemic risk in tri-party repo. (See below for a list of the task force members.).

This meant reform efforts would be developed in private by the same people who created the crisis in the first place. Tri-party did not become part of congressional deliberations or the July 21, 2010, Dodd-Frank Act, which essentially ignored tri-party reform except to put the Fed in charge.

After many meetings, the Fed’s task force released its final report February 15, saying it has made important progress but reforms will take longer than it expected, some will not be completed until perhaps 2016, and even then they won’t fix all of the Fed’s concerns.

The New York Fed said in a statement the same day that it will oversee the implementation of the reforms going forward and the Federal Reserve will work with Wall Street firms to try to find other ways to fix the still-unresolved dangers.  Developments will be noted at the task force web site.

In other words, reform of tri-party repo will come years from now, if at all.

For anyone who reads the task force’s reports, this is a sobering conclusion.
That’s because the reports lay out in the starkest terms a fly-by-the-seat-of-your-pants system where the parties to a transaction – the repo borrower, the repo lender, and the clearing bank – might not know what the others were doing.

Deals were sealed in an almost by-guess-and-by-golly way, leaving both the repo borrower and the repo lender at the mercy of their clearing bank, which might have to make decisions without having key information.

Through the work of the task force, the two clearing banks have made real improvements. But huge gaps remain.