Dallas Fed's Logan says central clearing would help policy operations

Investing.com -- Federal Reserve Bank of Dallas President Lorie Logan said Thursday that moving to central clearing in central bank monetary policy operations would benefit the financial system.

The Federal Open Market Committee "could make its open market operations more efficient and effective, and support the strength of U.S. markets more generally, by centrally clearing its operations on a voluntary basis," Logan said at a conference on market liquidity issues held by the New York Fed.

Logan's remarks did not address the monetary policy and economic outlook. The official was referring to facilities the central bank uses to achieve its monetary policy goals, including standing repo operations, which lend cash to eligible firms as needed.

Standing repos help the Fed ensure money market rates trade at desired levels but have seen limited use despite the Fed encouraging their usage. Some market observers believe a simpler clearing process would make standing repo operations more appealing.

Logan also said borrowing levels in markets require careful management.

"Maintaining strong and efficient financial markets requires both market participants and the official sector to appropriately balance the benefits and risks of leverage and its interaction with market liquidity," Logan said.

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