repos

The Chinese central bank has said that mainly focusing on inflation is not enough. “China’s monetary policies are aimed at achieving multiple goals, rather than just a solitary effort to control inflation,” said governor Zhou Xiaochuan. Other goals include ensuring economic growth, keeping a relatively high employment rate, and securing the international balance of payments, he said.

The People’s Bank of China says it will target “moderate” loan growth this year, in contrast to the extremely sharp expansion of credit last year. Loan issuance to industries facing overcapacity must be strictly controlled to avoid credit risks, governor Zhou said

Krishna Guha

If the Fed is bothered about primary dealers lacking the balance sheet capacity to do reverse repos on a large scale, why not use its regulatory powers to ease these constraints? The Fed might want to do as much as $500bn in reverse repos. The dealers have balance sheet space for $100bn at most.

A short-term reverse repo with the central bank ought not to be the kind of asset a bank needs to set much capital aside for, nor the kind of asset that counts against crude leverage limits. I am not an expert on the regulatory side of this but I suspect the Fed might be able to do something about this if it put its mind to it.