The United States could adopt even broader reforms of the wholesale funding markets than currently being considered, including forcing firms to rely more on longer-term funding or expanding the U.S. Federal Reserve's backstop, an influential Fed official said on Friday.
New York Fed President William Dudley warned that extensive activity in the money markets and tri-party repo markets takes place without proper safeguards against runs and fire sales, and he urged U.S. lawmakers to take a closer look.
Without endorsing a particular path, he suggested the government could curtail short-term wholesale finance, dissuading financial institutions from using such funding, or it could decide to extend access to the Fed's discount window to firms that are "much more socially useful than others."
"Regardless of where we come out on these questions, we must make the basic structure of the wholesale funding market as sound as possible," Dudley told the New York Bankers Association, according to prepared remarks.
"Thus, we must push ahead with tri-party and money fund reform."
(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)