Bloomberg Says Firms Build Buffers
Bloomberg recently published two news pieces involving money market funds. The first, "Funding Markets Show Dash for Cash as Firms Build Buffers," tells us, "Recent activity in funding markets shows a quiet push by financial institutions to build up buffers that would help protect against any credit meltdowns or market distress, a sign they perceive rising risks even as overall conditions remain stable for now. A cluster of indicators -- from increases Federal Home Loan Bank lending to shifts in money‑market fund allocations -- all suggest that institutions, at the margins, are positioning themselves more defensively and are in some cases paying up to do so.... These shifts aren't about any current strains: There's no stress evident in headline indicators such as rates on overnight repurchase agreements, and the Federal Reserve has been regularly buying Treasury bills to make sure reserves in the banking system are ample. It's more about individual institutions ensuring they have enough cash if conditions worsen, against a backdrop of mounting worries around private credit and broader economic unease." The other article, "Freed From US Punishment, Wells Fargo Bolsters the Repo Market," states, "When Wells Fargo & Co. was finally freed last year from a US‑imposed cap on its assets, the bank went looking for places to deploy its pent‑up financial power. Much of it flowed into overnight repurchase agreements -- the repo market -- just as the broader financial system was looking for another deep‑pocketed player. Since the cap came off, Wells Fargo has pushed more than $200 billion into this key piece of the financial system's plumbing, which links money‑market funds, dealers and Treasuries. Regulators have been warning about strains in this market, and in June -- the same month Wells Fargo was freed -- the Federal Reserve floated rule changes to make it easier for big banks to step in." The former article also says, "Money‑market funds shifted out of Treasuries and cash in February and moved into agency debt and repo, a rotation that aligns with the pickup in agency issuance driven by demand for FHLB advances and mortgage purchases, according to Bank of America Corp. strategists. Holdings of Treasury bills fell by $204 billion last month, even as the Treasury was ramping up supply to prefund tax refunds. That drop far exceeded the roughly $55 billion of bills the Fed purchased over the same period." Meanwhile, the second article adds, "At the beginning of 2023, direct exposure between money funds and Wells Fargo as primary dealer was minimal, according to JPMorgan's Ho. In May 2025, before the cap was removed, it was about $90 billion, Crane Data show. That ballooned to around $165 billion by the final quarter. The surge underscored how much demand there was for another player with balance-sheet capacity -- and how quickly the market absorbed it."
