Sign up for our daily briefing
Make your busy days simpler with Axios AM/PM. Catch up on what's new and why it matters in just 5 minutes.
Stay on top of the latest market trends
Subscribe to Axios Markets for the latest market trends and economic insights. Sign up for free.
Sports news worthy of your time
Binge on the stats and stories that drive the sports world with Axios Sports. Sign up for free.
Tech news worthy of your time
Get our smart take on technology from the Valley and D.C. with Axios Login. Sign up for free.
Get the inside stories
Get an insider's guide to the new White House with Axios Sneak Peek. Sign up for free.
Catch up on coronavirus stories and special reports, curated by Mike Allen everyday
Catch up on coronavirus stories and special reports, curated by Mike Allen everyday
Want a daily digest of the top Denver news?
Get a daily digest of the most important stories affecting your hometown with Axios Denver
Want a daily digest of the top Des Moines news?
Get a daily digest of the most important stories affecting your hometown with Axios Des Moines
Want a daily digest of the top Twin Cities news?
Get a daily digest of the most important stories affecting your hometown with Axios Twin Cities
Want a daily digest of the top Tampa Bay news?
Get a daily digest of the most important stories affecting your hometown with Axios Tampa Bay
Want a daily digest of the top Charlotte news?
Get a daily digest of the most important stories affecting your hometown with Axios Charlotte
Photo illustration: Drew Angerer/Getty Staff; Aïda Amer/Axios
The banking industry has argued in recent weeks that the problems in the systemically important repo market are the result of excessive regulations and could result in larger and more damaging liquidity events in the future.
Driving the news: Sen. Elizabeth Warren wrote to Treasury Secretary Steven Mnuchin on Tuesday to call foul and request an explanation of what's really going on in the market.
Background: Rates in the repo market that banks use to access quick cash spiked last month, reaching five times their normal level.
- This prompted the Fed to step in with emergency funding, and now daily cash injections and a standing $60 billion a month facility.
- Bankers, research analysts and fund managers have worried that the turmoil portends larger problems in the equity and bond markets and could lead to a wide-ranging liquidity crisis.
What's happening: Bank lobbying groups and a handful of CEOs have said the problem stems from too much regulation of the financial sector.
- “Recent repo market volatility highlights ... how policies intended to promote financial stability can sometimes frustrate it," Bank Policy Institute chief economist Bill Nelson told Axios.
- JPMorgan CEO Jamie Dimon said last week that his bank had the capital but was unable to step in to calm the spiking repo market because of liquidity requirements.
- State Street CEO Ron O'Hanley said Saturday that regulations will lead to more liquidity issues.
Between the lines: In her letter to Mnuchin, Warren said she's not buying the argument and the Treasury Department and Financial Stability Oversight Council, which Mnuchin chairs, should not buy it either.
- “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.”
- Just last week, the Fed and four other regulatory agencies approved the rollback of some restrictions on banks' adherence to the Volcker rule.
Warren isn't the only one who's dubious of the banks' cries for reduced regulation. Minneapolis Fed President Neel Kashkari told Axios that his patience is "basically gone" for bank complaints about reduced liquidity.
- Kashkari points to the Fed already providing a discount window where banks can access cheap emergency funding to deal with exactly the sort of liquidity squeeze that hit the repo market.
- "The banks are using this as a manufactured crisis," Americans for Financial Responsibility policy director Marcus Stanley told Axios. "They do that all the time and they’re doing it here. ... We’ve seen the damage that deregulated finance can do and it’s very extreme and long-term damage."