With only one bank left on Wall Street to clear repo trades, things could get very ugly very fast if the financial system were to experience anything close to what was seen during the collapse of Bear Stearns in 2008.
Now granted, there was only two clearing banks before J.P Morgan stepped down, but this isn’t just any bank; JPM accounts for whopping 11% of total bank assets in the United States!
For more on this story, visit the link below:
“Wall Street’s Trillion-Dollar Monopoly Has Repo Traders on Edge”, Bloomberg
Could this be a sign of something much more problematic brewing within this massive systemically important financial institution? Just recently Reuters reported that JPM had reached their cash limit, and that this actually played a much larger role in the sudden spike in the overnight repo rate experienced last month than many market specialists would like to believe.
JPM holds an astounding 65% of total equity derivatives in the United States, and if the market were to encounter a sudden and prolonged decline similar to what was seen in the 4th quarter of last year, this could certainly cause some big problems for the mega-bank; but as of now, we can only speculate.
Below is a list of the repo market’s largest participants
To learn more about the repo market, watch this video