Four years after US Repo market cracked triggering the global financial run, Federal Reserve is still grappling to understand the size and scope of the Repo market, an area that is outside the regulatory framework (shadow banking) but one that looks to be posing significant systemic risk.

“Gauging the size of the repo market segments clarifies the importance of what we know and do not know….we have very little information about the bilateral market… it would be valuable to know the type of collateral financed in that market and at what terms. This knowledge could give policymakers a better view of possible risk buildups,” states latest NY Fed research post.

So far, securities dealers have been identified as the figures to watch because they are present in every step in the flow chart above. Of particularly descriptive note (multiplier risk!) is the reuse of collateralized securities for more loans.

“Not surprisingly, it is not uncommon for dealers to reuse the securities they have received as collateral in segment 5 as collateral for their own borrowing in segments 2 or 3,” note authors.

This multiplier risk is surely affected by the rating quality of the security traded so as these ratings deteriorate as they are now so should the multiplier effect. Figuring this looks cumbersome when the Fed is grappling with just getting some sense on the size of the repo space.

While this post uses its finding about the tri-party repos that “improves upon the $10 trillion” estimate of the repo space, the post, deliberately or not, is strongly suggestive that the Fed is sniffing hard into Repos and that eventually they want to get a grip on it: why else would a policy group sniff at “possible risk buildups”.