(Adds background on moves in borrowing costs)
NEW YORK, Oct 3 (Reuters) - 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 quarter.
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 Oct. 14. (Reporting by Richard Leong; Editing by Lisa Von Ahn and Chizu Nomiyama)