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J.P. Morgan eliminates intraday credit exposure amid repo market reforms

J.P. Morgan announced it has achieved the reduction of tri-party credit set forth in the target end state of U.S. Tri-Party Repo Market Reforms. They claim to be the first clearing bank to successfully eliminate the unwind as part of the reforms proposed by a New York Federal Reserve Board-sponsored, industry-wide working group, which focused on reducing systemic risk and improving operational efficiency for market participants.
In November 2013, J.P. Morgan introduced three final interlinked initiatives:
    •    rolling settlement
    •    simultaneous exchange of cash and collateral
    •    the creation of a new secured committed clearance advance facility.
J.P. Morgan has now moved all clients to the new model.
This new solution delivers greater transparency, removes uncapped intra-day credit, introduces a capped committed credit facility, and gives dealers and their lenders innovative tools that increase their operational efficiency. It has also enabled J.P. Morgan to reduce materially the systemic risk previously created by over-reliance on clearing bank credit. It was the overall aim of the working group was to achieve the practical elimination of intra-day credit.

CTMfile take: The focus of banks and the authorities on removing intra-day credit in Repos is just part of a wider focus on first understanding and then eliminating all sources of uncapped and unmanaged intra-day to reduce systemic risk. The huge imbalances and intra-day overdrafts, e.g. those created in payment ebbs and flows, are no long accepted in the Basel III regulations. The technology and systems are now becoming available to manage a bank’s overall credit exposures intra-day. Charging for intra-day overdrafts is no longer an ‘if’, it has become a ‘when’.

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