Tuesday, November 29, 2016

Clearinghouses Park Billions in New Fed Accounts . CME Group, Options Clearing Corp. among large companies that have opened accounts at the Fed

The Wall Street Journal reports:
Financial firms are lining up for the hottest new account on Wall Street: checking with interest at the Federal Reserve.

CME Group Inc. and the Options Clearing Corp. are among large companies that have parked billions of dollars in new accounts at the Fed, reflecting a recent rule change that made the accounts more widely available and the attractive rates paid by the central bank on deposits.

Earning interest on reserves at the Fed has been the privilege of banks since 2008, but a wider swath of Wall Street won the right under a provision of the 2010 Dodd-Frank Act that aimed to bolster “clearinghouses” that guarantee obligations on trades for a fee.

CME and OCC are among the biggest operators of such clearinghouses, which have taken on prominence as regulators seek to prevent a replay of the 2008 crisis, when the failure of Lehman Brothers Holdings Inc. left many trading firms facing ruinous losses.

The clearinghouse operators are using their Fed accounts to earn interest on the cash collateral that members, such as Citigroup Inc., Goldman Sachs Group Inc. and Interactive Brokers LLC, pledge in the course of their daily transactions and trade-processing.

As of mid-November, units of four major U.S. clearinghouse operators—CME, Depository Trust & Clearing Corp., OCC and Intercontinental Exchange Inc.—had opened accounts worth a combined $20 billion at the Fed, funded with members’ own cash against their trading.

The new accounts are also the latest shift since the crisis to vastly expand the Fed’s role in the financial system. It is a trend that leaves some commentators uncomfortable because the Fed is expanding activities touching Wall Street in ways it never did before 2008.
Liz Warren's "silent" bailout of the financial system in the news! It's outrageous that , now, the CME can have an account a the Fed. This is a direct threat to have a free market in banking of any sort. Just a reminder, every dollar parked at the Fed by financial institutions is one dollar less that banks want to loan out.