BIS Drops a Bombshell: Four U.S. Mega Banks Are at Center of Repo Loan Crisis

The biggest banks appear to be backing away from lending to those institutions that are deemed a bad risk or are heavily interconnected to an institution deemed to be a bad risk — even for an overnight loan since the institution could file for intraday bankruptcy.

By Pam Martens and Russ Martens of Wall Street on Parade.

Yesterday, the Bank for International Settlements (BIS) dropped a bombshell report that torpedoed the Federal Reserve’s official narrative on what has caused the overnight lending market (repo loan market) on Wall Street to seize up since September 17, leading to more than $3 trillion in cumulative loans from the New York Fed as lender of last resort.

The Federal Reserve has said the repo crisis was a result of corporations draining liquidity from the system to pay their quarterly tax payments alongside a large auction of U.S. Treasury securities settling and adding to the cash drain. That excuse was clearly bogus since the Fed has provided hundreds of billions of dollars weekly into the repo market since September 17, while stating that it plans to continue this activity into next year.

The BIS report dropped the bombshell that the “US repo markets currently rely heavily on four banks as marginal lenders.” Curiously, the BIS report was too timid to name the banks.

As Wall Street On Parade has regularly pointed out, there are more than 5,000 Federally-insured banks and savings associations in the U.S. but the bulk of the assets, derivatives and risk to U.S. financial stability are concentrated at just a handful of Wall Street’s “universal” banks — those making high risk trading gambles while also owning federally-insured, deposit taking banks. Ranked by assets, as of June 30, 2019, those are the bank holding companies of JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs Group, and Morgan Stanley. Those six Wall Street banks hold $8.9 trillion of the $18.56 trillion in assets at the 5,213 federally-insured banks and savings associations in the U.S. That’s six banks holding 48 percent of the total assets of 5,213 banks.

The risks posed by a handful of banks in the derivatives market is even more concentrated. According to a quarterly report from the federal regulator of national banks, the Office of the Comptroller of the Currency (OCC), just five banks control 82 percent of the $280 trillion in notional (face amount) of derivatives at the 25 largest bank holding companies. Derivatives played a critical role in blowing up Wall Street banks in 2008 and resulted in the largest taxpayer and Federal Reserve bailout of any industry in U.S. history

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