In accordance with the Federal Open Market Committee (FOMC) directive adopted on September 18, 2019, the Open Market Trading Desk (the Desk) of the Federal Reserve Bank of New York will conduct a series of overnight and maturing retirement transactions to keep the federal funds rate within the target band. The short answer is yes – but there are significant differences of opinion on the extent of this factor. Banks and their lobbyists tend to characterize regulation as a bigger cause of problems than policy makers who put in place the new rules after the 2007-9 global financial crisis. The objective of the rules was to ensure that banks had sufficient capital and liquidity, which can be sold quickly in the event of difficulties. These rules may have allowed banks to keep reserves rather than lend them to the repo market in exchange for treasury bills. Stress began Monday in the pension or deposit market. The repo market channels more than a trillion dollars of funds every day across Wall Street, usually without fanfare. This money is used to pay for the day-to-day operations of large banks and hedge funds. Second, market problems have focused on the mortgage-backed securities market, often referred to as AAA and used by borrowers as collateral in buyback markets. Between 2008 and 2014, the Fed introduced quantitative easing (QE) to stimulate the economy. The Fed has built up reserves to buy securities, which has significantly increased its balance sheet and the supply of reserves to the banking system.

As a result, the pre-crisis framework was no longer working, so the Fed moved to a “broad reserve” framework with new instruments – interest on excess reserves (IORR) and overnight deposits (ONRRP), the two interest rates that the Fed itself sets – to control its main short-term interest rate. In January 2019, the Federal Reserve`s open market committee – the Fed`s policy committee – confirmed that it “intends to continue to implement monetary policy in a regime where sufficient reserve supply will ensure that control of the level of the Federal Funds and other short-term interest rates is primarily through the setting of interest rates managed by the Federal Reserve and in which active management of reserve supply is not necessary.” When the Fed ended its asset buyback program in 2014, the supply of excess reserves in the banking system began to shrink. When the Fed began to reduce its balance sheet in 2017, reserves fell more rapidly. [8] For various Wells Fargo scandals, see the Financial Times, “Wells Fargo was severely punished for the fake accounts scandal,” www.ft.com/content/2ba362e4-0870-11e8-9650-9c0ad2d7c5b5 February 3, 2018; “Wells Fargo incurs $480 million securities fraud lawsuit,” www.ft.com/content/a3403e88-4fdf-11e8-a7a9-37318e776bab May 4, 2018; “Wells Fargo is likely to get a default job at Ermann Parker” www.ft.com/content/e1dbb33a-e114-11e9-b112-9624ec9edc59 September 27, 2019.