Reverse repos Cannot reply to someone on here as on ignore but see their headlines when not logged in which is unfortunate. It's obvious from this posters hysterical writing that they've never worked in the financial sector. If they had they would know that reverse repos are conducted by the NY Fed when there's too much cash in the system. The interbank markets works on equal balances being moved to counter parties. One has to many deposits the other needs deposits to cover their loans on the books. They can cover loans just through overnight deposits if they think rates are coming down or through longer term fixed deposits or hedge through IRS, interest rates swaps or FRA's forward rate agreements.
When there's too much cash in the system those banks with excess deposits don't want to park their cash in an overnight market that's falling as they receive less interest so they go to the Fed who conducts either repos or reverse repos, in this case, excess cash reverse repos take place.
Now when there's a run on banks then the credit risk of that bank is highlighted and they find it hard to raise money in the interbank market. What happens in that case is their correspondent bank fills the hole. In the situation in the US where credit risk has been heightened then more banks wave that risk with support from the Fed and lend to that counterparty so diminishing the threat of any more bank failures. We've seen this happen already with First Republic. The biggest issue the smaller banks have is a run on deposits over $250k but that can be overcome with help from binding agreements with counter parties and help from the Federal reserve.
The worst scenario I can see is all money runs to the big banks out of the smaller ones which means they can't fund their loans and the business becomes non sustainable. But loans can be sold and with over 4,500 banks in the US the loss of 500 smaller ones (in an orderly fashion) would not be a bad thing as most of the smaller ones are all chasing the same business.
A complete collapse would be millions of mortgage payments failing, with high employment there is no evidence that that's happening. But this is where the thin red line is. If the Feds keep rates to high to long and if millions of mortgages and fixed personal loans come due and if unemployment was to suddenly spiral out of control then that's the receipe for disaster. No evidence whatsoever we are close to that stage at the moment.
Back to IAU, very bullish close.