Sen. Warren Presses Mnuchin On Recent Issues In Repo Markets

Warren Warns Against Loosening Repo Lending Regs

Recent short-term, or repo, lending issues have Sen. Elizabeth Warren worried that banks could potentially use the problems to justify easing regulations on the banking industry as a whole.

CNBC is reporting that Warren wrote a letter to Treasury Secretary Steven Mnuchin about the mid-September issues, including a deluge of corporate tax payments and settlements of government bond auctions, both of which have been a drain on a system that normally runs without hiccups.

The cash crunch contributed to an overnight lending rate high of 10 percent. The issues have triggered a conversation about whether banks are too sheepish about getting rid of cash that would normally be used in a repo situation, which banks typically use to procure overnight lending.

Warren, who is a member of the Senate banking committee, said she’s “concerned” about whether banks will claim that the liquidity regulations imposed on them after the financial crisis are too strict.

“These rules were designed to ensure that banks have enough cash on hand to meet their obligations in the event of another market crash,” Warren wrote. “Banks are reporting profits at record levels, and it would be painfully ironic if unexplained chaos in a small corner of the banking market became an excuse to further loosen rules that protect the economy from these types of risks.”

The Fed is looking into why banks did not enter repo markets during the rate hike.

Mnuchin did not respond specifically to Warren’s concerns, but he did speak about Facebook’s proposed cryptocurrency Libra and its implications, according to a report in American Banker.

“We’ve told [Facebook] that we thought their launch was premature, that they had not addressed fundamental issues around money laundering, [Bank Secrecy Act] requirements and other” concerns, Mnuchin told members of the House Financial Services Committee.

Facebook CEO Mark Zuckerberg is scheduled to testify before the House Financial Services Committee on Wednesday (Oct. 23), and the exchange is expected to be contentious.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.