Federal Reserve Bank of Boston President Eric Rosengren said broker regulation needs a 'major re-examination' to prevent funding shortfalls during a crisis, and New York Fed President William C. Dudley said the wholesale funding system must have greater stability.
'Broker-dealers can experience significant funding problems during times of financial stress,' Rosengren said in remarks to a Fed conference on wholesale funding risk in New York. 'Unfortunately that potential for problems has not been fully addressed since the crisis.'
Bloomberg News reports that Fed officials have warned the web of repurchase agreements, or repos, remains prone to unravel in a panic, leading to fire sales of assets that could spread losses across the financial system. The failure of Lehman Brothers in 2008 was due in part to its inability to renew short-term funding deals as the value of its collateral plunged.
Dudley also cited the crisis, saying it 'revealed serious flaws' in the financial industry and that 'it is essential to make the system more stable.'
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