Repo Market Changes Soon?

With the news that the Federal Reserve Board is planning a major revamp of the huge REPO Market, the market where banks around the world raise overnight dollar loans, does this mean that the FED actually is doing something about "RUNS ON BANKS"?

On the surface it does look like they woke up form their ultra low rate stupor and are working on a utility that will eventually replace Wall Street Banks.

The basic idea is was partly motivated by what happened to both Bear Stearns and Lehman Brothers. Both Lehman/Bear were huge participators in the Over-Night lending/REPO Markets, and both firms were doomed when the collateral they used to finance their daily lending, dropped precipitously, making margin selling inevitable.

The basic REPO structure that is in place at the moment on Wall Street can be best described as "DEN OF THIEVES." When one company is in trouble (Bear/Lehman), there is blood in the water, and the Wall Street sharks (GS/JP) go to work.

The Fed is looking into the creation of a mechanism to replace the clearing banks, the biggest of which are JP and BONY, that serve as intermediaries between borrowers and lenders. In the repo markets, borrowers, such as banks, pledge collateral in return for overnight loans from lenders, such as money market funds.

The clearing banks stand between the parties, providing services such as valuing the collateral and advancing cash during the hours when trades are being made and unwound.

The Fed fears that this arrangement puts the clearing banks in a difficult position in a crisis. As the value of the securities falls (Bear/Lehman), clearing banks (JP/BONY) have an obligation to demand more collateral to avoid losses. But in doing so, they could hammer a rival. The Fed is stating the system currently doesn't protect the interest of all parties....I cant believe they came to this understanding? It only took the total annihilation of Bear/Lehman, and the whole system general to get them going on this issue.

The system’s complications were evident during Lehman’s collapse. JP one of Lehman’s biggest trading partners, acted as its clearing bank in the repo market and along with BONY, served as the clearing bank for the New York Federal Reserve’s credit facility for securities ­companies.

Everyone knows the system is flawed and there is huge conflicts of interest here, but if not the clearing banks, who would facilitate repo transactions? The FED surely can, as they have the no how and trading skill, but do you actually think JP/GS/BONY are going to give this up without a fight? Why would they? The banks have gotten everything they wanted in this crisis from the beginning, they will fight these changes.

Its a great idea on the surface, but its not happening.