A new New York Fed paper explains why repo plumbing still differs between cash lenders, dealers and hedge funds. Central clearing lets dealers net exposures and use less balance sheet, but adds margin and default-fund costs. Money funds’ centrally cleared lending reached almost 40% of their repo activity in the first quarter of 2026. Hedge funds’ bilateral borrowing offers collateral flexibility; the cited OFR data found zero haircuts on 75% of non-cleared bilateral Treasury repos. That is a financing term, not proof of zero risk. Tri-party settlement, meanwhile, uses a collateral agent without turning that agent into the counterparty.

Read the original