Repo Market Crisis (2019)
What It Is
The Repo Market Crisis of September 2019 was a sudden spike in overnight repo rates, signaling a severe shortage of liquidity in short‑term funding markets.
Why It Matters
It revealed structural fragilities in the U.S. funding system and forced the Federal Reserve to intervene aggressively.
How It Happened
- Corporate tax payments drained liquidity
- Treasury settlements increased cash demand
- Bank reserves were too low
- Repo rates spiked from ~2% to over 10%
Key Components
- Repo market mechanics
- Bank reserve levels
- Short‑term funding stress
- Fed emergency repo operations
Example
The Fed injected tens of billions of dollars into the repo market to restore stability.
Key Takeaways
- Funding markets can seize unexpectedly.
- Reserve levels matter more than policymakers assumed.
- The crisis foreshadowed the liquidity challenges of 2020.