(Adds background on moves in borrowing costs)
NEW YORK Oct 3 The cost for a key short-term
funding source for Wall Street tumbled on Monday from its
highest level since the global credit crisis almost eight years
ago on signs of increased lending with the start of the fourth
The interest rate on repurchase agreements, in which
financial institutions use U.S. Treasuries and other securities
as collateral to raise cash from investors, was last quoted at
0.30-0.40 percent after it rose as high as 1.75 percent on
Friday, according to ICAP data.
Investors ramp up their lending at the start of a quarter
after scaling it back at the end of the prior quarter to
conserve cash in an effort to meet capital requirements.
The repo rate and other short-term bank borrowing costs for
Wall Street often swing sharply at the end of a quarter and
start of a new one.
In the meantime, jitters about the banking sector began to
abate after AFP reported on Friday that Deutsche Bank
was close to a settlement for $5.4 billion. This
would more than halve the $14 billion demanded by the U.S.
Justice Department for Germany's biggest lender for mis-selling
of mortgage-backed securities before the financial crisis.
The steep initial settlement amount had rattled financial
markets as traders speculated on Deutsche Bank's stability.
Interest rates for banks to borrow dollars have also been
rising in recent weeks as U.S. prime money market funds have
pared their purchases of short-term bank debt.
A number of prime money funds have been converting to funds
that own only U.S. government securities in an effort to be
exempted from new industry regulations that go into effect on
(Reporting by Richard Leong; Editing by Lisa Von Ahn and Chizu