MNI POLICY: Fed's Barkin: Mulling Various Money Market Fixes

By Jean Yung

     RICHMOND, VA. (MNI) - Richmond Fed President Tom Barkin is open to studying

ways to ensure smooth operating money markets such as reducing the volatility of

the Treasury General Account, tailoring liquidity regulations and creating a

standing repo facility.

     While he has yet to see evidence the liquidity crunch in money markets late

last year was driven by liquidity regulation, "I'd certainly be open to

appropriate tailoring if that makes sense," he told reporters Thursday on the

sidelines of a Virginia Bankers Association luncheon. 

     The Fed shares its balance sheet with the foreign repo pool and Treasury's

General Account, and "I wonder if there are ways to reduce volatility there," he

said.

     While the Fed has no direct way to control the TGA, Treasury could change

its cash management policies, commit to holding a lower balance in its Fed

account, deposit some of that money with commercial banks, or do a combination. 

     A proposed standing repo facility that would readily exchange cash for

Treasuries still faces a number of issues over its design, including "how in the

money or and out of the money you want the pricing to be," Barkin said. 

     The Fed should also be mindful it does not have too much influence on

markets and balance that against the obligation to manage the fed funds rate,

Barkin said. 

     Asked if the Fed would need to consider buying longer-dated Treasuries to

expand its pool of reserves, Barkin said existing bill purchases have worked

well and "hopefully that will continue to work fine." 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

[TOPICS: MMUFE$,M$U$$$,M$$CR$,M$$FI$,MN$FI$,MN$MM$,MN$RP$]