Yesterday, the Federal Reserve Bank of New York (FRBNY) announced the publication of White Paper: Tri-Party Repo Infrastructure Reforms (White Paper). The White Paper includes the recommendations of the Tri-Party Repo Infrastructure Task Force, created in 2009 by a private sector group of senior U.S. bank officials sponsored by the FRBNY, the Payments Risk Committee, at the request of the FRBNY. The Task Force, which held a workshop in February, includes tri-party repo market participants, service providers and representatives from industry groups and was created to address tri-party repo market infrastructure weaknesses that became apparent during the financial crisis of 2008 and 2009.

The White Paper focuses on policy concerns regarding weaknesses in the infrastructure of the tri-party repo market and seeks public comment on the Task Force’s recommendations to address these concerns. Specific recommendations include:

  • Reducing the market’s reliance on intraday credit provided by clearing banks and clarifying the credit and liquidity risks borne by market participants;
  • Requiring dealers to account for the loss of secured funding in their liquidity risk management plans and stress tests;
  • Strengthening margining practices, including adoption of certain “best practices”;
  • Requiring cash investors to develop “liquidation plans” for the liquidation of repo collateral in the event of dealer default; and
  • Generally improving market transparency, including transparency of collateral valuation.