A too-big-too-fail bank is using cheap short-term funding (from repos) to invest in long term assets, bonds.
The magnitude is concerning.
When confidence in overnight lending between banks reduces (because the other banks realise what this funding is for), the interest rate (measure of risk) rises.
For repo rates: 2.5% is high, 10% brings the house down, and has a blast radius that impacts the entire system.
The magnitude is concerning.
When confidence in overnight lending between banks reduces (because the other banks realise what this funding is for), the interest rate (measure of risk) rises.
For repo rates: 2.5% is high, 10% brings the house down, and has a blast radius that impacts the entire system.