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Fed to scrutinise BNY Mellon's tri-party repo role after JPM exit
25 October 2016
BNY Mellon is now the sole provider of settlement services for US government securities
BNY Mellon will be under intense scrutiny from the Federal
Reserve when it becomes the sole settlement provider for US
government securities in the $1.7trn tri-party repo market.
Federal Reserve governor Jerome Powell said the bank
will have to "raise the bar" and beef up its capital and
liquidity requirements and strengthen its resolution planning
given that it will be the only bank filling the role.
Earlier this year JP Morgan announced it would wind down
settlement services for US government securities, adding that
the high-volume low-margin tri-party repo business was "not
core to its growth strategy."
"Thirty years ago there were six banks providing a full
suite of settlement services for US government securities,"
said Powell in prepared remarks for a conference in New
York on the structure of the US treasury market.
"Since the 1990s that had come down to two. As BNY Mellon
becomes the sole provider, we will raise our expectations even
Powell, who joined the Federal Reserve in 2012, added that
if unexpected complications arise over the next two
years, JP Morgan may need to change its current two
year timeline for an exit from the business.
Although the Fed's current task is to establish expectations
for BNY Mellon as a sole operator, Powell said that focus
should not be taken as an indication that the Fed or other
authorities have pre-judged what the longer-term landscape for
government securities settlement should look like.
"In fact, we do not have a specific market design end state
in mind," he said in a speech this week. "The industry as a
whole should play an important role in shaping the evolution of
the settlement infrastructure. Other firms may seek to enter
There have also been discussions over time of a settlement
utility, Powell added, and the DTCC is currently considering a
new variant of such a model.
"Our focus is on the quality of the services offered--their
safety, resilience, and support of the market--and not on the
particular mechanism for offering them. If new proposals come
forward that are consistent with our goals of a safe and
resilient settlement system, then they will receive fair