- Treasury Secretary Steven Mnuchin is working with the Federal Reserve to monitor bank reserves and decrease the chances of a rate crisis similar to September's, The Wall Street Journal reported Thursday.
- Mnuchin told the House of Representatives on Thursday that he and Fed Chair Jerome Powell have met multiple times to discuss the September lending rate spike and liquidity concerns ahead of year-end reserve obligations.
- The Fed has been pumping billions of dollars into money markets through market repurchase agreement, or repo, operations and Treasury bill purchases after its overnight lending rate spiked in September.
- The crisis prompted worries that the central bank couldn't control the key interest rate.
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Treasury Secretary Steven Mnuchin is collaborating with the Federal Reserve to monitor lender reserves and curtail a rate crisis similar to September's, The Wall Street Journal reported Thursday.
Mnuchin told the House of Representatives on Thursday that he and Fed Chairman Jerome Powell have met multiple times to discuss liquidity concerns as banks face year-end reserve requirements.
"We talked in our weekly meeting making sure the Fed is prepared for year-end activity so there are ample reserves," the Treasury secretary said.
The Fed's overnight lending rate unexpectedly spiked in September, prompting the central bank to begin multibillion-dollar capital injections through market repurchase agreement, or repo, operations and Treasury bill purchases. September's repo operations were the first from the Fed since the 2008 financial crisis, leading many analysts to worry the central bank lost control of its key lending rate.
Federal Reserve Bank of New York officials briefed the Financial Stability Oversight Council this week on the rate spike, Mnuchin added. The secretary added that the Treasury is in talks with bank regulators to review reserve laws and judge whether they fueled the September crisis.
"I can assure you this is something that FSOC is very focused on, and this is something that in my role as Treasury secretary, Chairman Powell and I are working on," Mnuchin said.
The Treasury secretary said in late October that he is open to loosening liquidity laws for banks. The legislation, born from the Great Recession, weighs on bank liquidity by forcing firms to hold a bigger fraction of free cash as emergency reserves. Larger banks are evaluated at the end of each year to judge how prepared they are for a liquidity crisis, and the institutions typically lend less cash heading into the evaluations to appease regulators.
Powell previously noted the Fed's repo operations don't signal a return to its past practice of quantitative easing, and are instead meant to keep emergency reserves at a previously established level.
"We will act as appropriate. Looking ahead, policy is not on a preset course," Powell said in an October 8 speech.
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