Risks caused by short-term funding continued to pose a threat to the financial system despite regulators attempts to raise capital buffers for the country's biggest institutions, a senior Federal Reserve official said.
William Dudley, the president of the New York Fed said the potential for bank runs caused by repurchase agreements (where a financial institution sells a security to another firm with an agreement to buy it back at an agreed price in the future) threatened the stability of the financial system.
"Worthwhile as the steps taken thus far are, we have not come close to fixing all the institutional flaws in our wholesale funding markets. The tri-party repo system and the money fund industry that plays a crucial role financing collateral through it are both still exposed to runs," Dudley said in a speech on Friday.
Dudley's speech appeared to be targeted at the council of regulators called the Financial Stability Oversight Council, which was tasked by the Dodd-Frank
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