A chronicle of repurchase agreements (RP) and other paradoxical property ownership contracts - www.omo.co.nz

Money Multipliers and Sweep Accounts

In May '03 MM from The Monetary Letter noted the  following;   "In 1993 banks, beginning with First Union, initiated use of software programs for sweeping demand deposits to savings accounts, which reduced the statutory reserve requirement and grew bank credit-creating capacity enormously. With what we know of the fractional reserve system of bank lending it is also not difficult to perceive of the process that also caused a proportionate increase in broad money supply.

Nonreservable assets as reported by the Federal Reserve increased $369 billion from 1994 to the end of 1999, due solely to the retail sweeping. The amount of required bank reserves as reported by St. Louis Fed researchers was reduced by $34 billion, or 9.2 percent of the growth in nonreservable assets.

In the nearly 10 percent reserve dividend you might see support for the 9:1 credit-to-reserve asset ratio that is the statutory requirement, and, therefor, equal support for the 9x multiplier that will be used to estimate the system effect of the central bank adding high-powered money to bank reserves.

This type of financial adventure is especially topical once considering how frequently capital expenditures are being cited as determinants of future economic growth. I doubt that any new scheme in the US system of money and banking will contribute to economic performance quite to the extent of retail sweeps, which are today providing but a shadow of the increase in nonreservable funds created in the first few years of that type of activity".

Nevertheless, it is worth investigating the numerical analysis below to address perceived anomalies in money aggregate growth: Click here to view a larger image

 

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OMO Matters

US Federal Reserve Reference Publications

"The market for repurchase agreements on US government securities is of vital importance to the New York Fed, and the whole Federal Reserve System, because it is where virtually all of our monetary policy operations are conducted."- Peter Fisher, Manager, System Open Market Account - 15 January 1997.

"Open market operations are not another weapon in the Fed's arsenal, but the only weapon in its arsenal." - Monetary Trends, St Louis Federal Reserve, August 2003.

Repurchase Agreements with Negative Interest Rates - FRBNY - A primer detailing how short sales of Treasury securities can lead to protracted RP fails and consequently negative rates to address capital requirement issues.

Reserve Bank of Australia repo eligible, basis swapped, foreign issued AUD debt - read here.

"Good News" Macroeconomics

OMO-Repo Misuse - Letters to Hon. Dr. Michael Cullen, N.Z. Minister of Finance.

Repo Transaction Accounting. Letter to Mr A Orr, RBNZ.

IMF Repo Accounting Examples, Full Article

Credit Creation, Letter to Iris Claus and Arthur Grimes.

NZ Debt Management Office Uridashi issue and associated EuroKiwi letters to Hon. Dr. Michael Cullen, N.Z. Minister of Finance.