(Reuters) – With memories of September’s historic spike in short-term funding costs still raw, Wall Street and the Federal Reserve are gearing up for another potential cash crunch at year end. FILE PHOTO: A street sign, Wall Street, is seen outside New York Stock Exchange (NYSE) in New York City, New York, U.S., January 3, 2019. REUTERS/Shannon Stapleton Liquidity levels will be tested as early as Monday, when Wall Street firms have to shell over cash to the U.S. Treasury for this week’s government bond sales and businesses draw down reserves to make quarterly tax payments – events that could drain more than $100 billion in liquidity from the banking system. Those factors were identified as two of the main culprits in the mid-September episode, when interest rates in the overnight repurchase agreement – or repo – market shot to as high as 10%, more than four times the Fed’s benchmark overnight lending rate. And a new wild card may come into play this month. Some large banks may scale back lending in the repo market in an effort to shrink their balance sheets to avoid regulatory penalties, which would add to the funding stress. “The market is still quite… Read full this story
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