The Market Events of Mid-September 2019

Gara Afonso, Marco Cipriani, Adam Copeland, Anna Kovner, Gabriele La Spada and Antoine Martin

Economic Policy Review, 2021, vol. 27, issue 2, 26

Abstract: This article studies the mid-September 2019 stress in U.S. money markets: On September 16 and 17, unsecured and secured funding rates spiked, 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 reallocate 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 sponsored repo program.

Keywords: federal funds market; repo market; central bank reserves; regulation; monetary policy implementation (search for similar items in EconPapers)
JEL-codes: E42 E58 G14 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/rese ... et-events_afonso.pdf Full text (application/pdf)
https://www.newyorkfed.org/research/epr/2021/epr_2021_market-events_afonso.html Summary (text/html)

Related works:
Working Paper: The market events of mid-September 2019 (2020)
Working Paper: The Market Events of Mid-September 2019 (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednep:93004

Ordering information: This journal article can be ordered from

Access Statistics for this article

More articles in Economic Policy Review from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().