MNI BRIEF: Fed Should Explore Central Clearing At SRF-Hammack
MNI (WASHINGTON) - Cleveland Fed President Beth Hammack said Thursday the U.S. central bank should consider the benefits of centrally clearing transactions at its Standing Repo Facility to further enhance the effectiveness of the backstop.
"I view the creation of the SRF and FIMA facilities as a kind of constant innovation that's required to keep the financial system safe from emerging risks. As part of that constant innovation, we should ensure that our tools are keeping pace with market developments," she said at a financial stability conference hosted by the Cleveland Fed and the Treasury's Office of Financial Research.
"In that vein, a notable recent development is the growth in centrally cleared repo," Hammack said. "Dealers are using the netting advantages of centrally cleared repo to expand their balance sheets and intermediation capacity. As the market shifts towards this new technology, I think we should explore the financial stability benefits and costs of centrally clearing the Standing Repo Facility. Clearing could alleviate bank balance sheet pressures, further reduce stigma concerns, and ensure our tools are used when they're needed most." (See: MNI: Fed's Standing Repo Facility Tested By Market Rate Spike)