Lehman and Repo Market 2019

About Lehman and Repo Market 2019

In September 2019, the overnight repo market in the US suddenly seized up. Repo rates spiked from 2 to 10 percent. The Federal Reserve was forced to inject hundreds of billions in liquidity. The disruption was caused by corporate tax payments and Treasury bond settlements draining reserves from the banking system. The repo crisis revealed that the financial system remained fragile despite post 2008 reforms. The Fed began permanent repo operations and expanded its balance sheet. The event was overshadowed by COVID 19 months later but demonstrated that money markets could still malfunction dangerously.