Hedge funds exacerbated the recent turmoil in the repo market with their thirst for borrowing cash to juice up returns on their trades, according to the Bank for International Settlements.
Investors, bankers and policymakers were left stunned in September when the cost of borrowing cash overnight in exchange for high-quality collateral such as US government debt shot higher, eventually forcing action from the Federal Reserve to keep the market functioning smoothly.
In the aftermath, attention focused on the role played by banks, which had become reluctant to lend cash into the market despite the higher interest rates on offer.
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