The Market Events of Mid-September 2019

30 Pages Posted: 6 Mar 2020

See all articles by Gara Afonso

Gara Afonso

Federal Reserve Bank of New York

Marco Cipriani

Federal Reserve Bank of New York

Adam M. Copeland

Federal Reserve Bank of New York

Anna Kovner

Federal Reserve Bank of New York

Gabriele La Spada

Federal Reserve Banks - Federal Reserve Bank of New York

Antoine Martin

Federal Reserve Bank of New York - Research and Statistics

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2020

Abstract

This paper studies the mid-September 2019 stress in U.S. money markets: On September 16 and 17, unsecured and secured funding rates spiked up and, on September 17, the effective federal funds rate broke the ceiling of the Federal Open Market Committee (FOMC) target range. We highlight two factors that may have contributed to these events. First, reserves may have become scarce for at least some depository institutions, in the sense that these institutions’ reserve holdings may have been close to, or lower than, their desired level. Moreover, frictions in the interbank market may have prevented the efficient allocation of reserves across institutions, so that although aggregate reserves may have been higher than the sum of reserves demanded by each institution, they were still scarce given the market’s inability to allocate reserves efficiently. Second, we provide evidence that some large domestic dealers likely experienced an increase in intermediation costs, which led them to charge higher spreads to ultimate cash borrowers. This increase was due to a temporary reduction in lending from money market mutual funds, including through the Fixed Income Clearing Corporation’s (FICC’s) sponsored repo program.

Keywords: federal funds market, repo market, central bank reserves, regulation, monetary policy

JEL Classification: E42, E58, G14

Suggested Citation

Afonso, Gara and Cipriani, Marco and Copeland, Adam M. and Kovner, Anna and La Spada, Gabriele and Martin, Antoine, The Market Events of Mid-September 2019 (March 1, 2020). FRB of New York Staff Report No. 918 (2020), Available at SSRN: https://ssrn.com/abstract=3549473 or http://dx.doi.org/10.2139/ssrn.3549473

Gara Afonso

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

HOME PAGE: http://nyfedeconomists.org/afonso

Marco Cipriani

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Adam M. Copeland

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Anna Kovner

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Gabriele La Spada

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5164 (Phone)

HOME PAGE: http://https://www.newyorkfed.org/research/economists/laspada

Antoine Martin (Contact Author)

Federal Reserve Bank of New York - Research and Statistics ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6943 (Phone)

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