It is time for the Fed to take a leadership role in getting the industry to begin the collaborative effort to develop a structural solution to lessening the risk of the two bank tri-party clearing model. The Fed always waits for the “street” to develop the innovation that evolves the market infrastruture to the next level but in the case of repo CCPs the Fed needs to get more aggressive in guiding the street to the next level as they are the lender of last resort. While Dodd-Frank buffers the Fed from lending to bail-out a failing institution but section 13(3) of the Act is still an active part of what allows the Fed to provide liquidity in a crisis. I think Gov Powell’s speech is a game changer in an effort that needs broad support.
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It is time for the Fed to take a leadership role in getting the industry to begin the collaborative effort to develop a structural solution to lessening the risk of the two bank tri-party clearing model. The Fed always waits for the “street” to develop the innovation that evolves the market infrastruture to the next level but in the case of repo CCPs the Fed needs to get more aggressive in guiding the street to the next level as they are the lender of last resort. While Dodd-Frank buffers the Fed from lending to bail-out a failing institution but section 13(3) of the Act is still an active part of what allows the Fed to provide liquidity in a crisis. I think Gov Powell’s speech is a game changer in an effort that needs broad support.