Fed Eases Liquidity Rules

I have been talking extensively about the LCR which is now at 100%, which puts a burden on banks because they cannot use these high quality liquid assets due to the regulation.

The Fed now announced they would ease these liquidity rules to about 85%. This is a huge drop in liquidity ratio. Since these banks now have more liquidity, they will probably start using it in the economy (for example loans). This would be good for stocks (especially foreign banks) and inflation.

JP Morgan caused repo madness liquidity shortage

Zerohedge reports that JP Morgan caused the repo liquidity shortage.

I wrote about LCR being the culprit of this liquidity shortage.

When we look at JP Morgan's LCR it was 115% last year.



So probably it has dropped in 2019 causing these repo issues.

JPMorgan reduced the cash it has on deposit at the Federal Reserve, from which it might have lent, by $158 billion in the year through June, a 57% decline.

Basel III says that the LCR should be higher than 100% in order to protect the financial system from cash outflows.

We're talking about $500 billion in HQLA that cannot be used due to regulatory requirements.