September 30, 2016 / 1:41 PM / a year ago

MONEY MARKETS-U.S. repo rate jumps to highest since credit crisis

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By Richard Leong

NEW YORK, Sept 30 (Reuters) - The cost for a key short-term funding source for financial institutions climbed on Friday to its highest level since the global financial crisis nearly eight years ago due to quarter-end funding pressure and worries about the banking sector.

Investors pare their lending to financial institutions at the end of each quarter to conserve cash. This drives up borrowing costs for banks during this period before they retreat when the new quarter begins.

In the meantime, investors are jittery about the banking sector including concerns about Deutsche Bank and Wells Fargo & Co

The U.S. Justice Department has demanded that Deutsche Bank, Germany’s biggest lender, pay up to $14 billion for misselling mortgage-backed securities. This has spurred speculation whether Deutsche could raise the funds to pay the fine.

Wells Fargo, meanwhile, earlier this month reached a $190 million settlement regarding the bank’s staff opening accounts without customers’ knowledge for years. On Thursday, it was fined $24 million on allegation it repossessed cars owned by service members without obtaining a court order.

Concerns over such issues drove up the interest rate on repurchase agreements, in which commercial and investment banks use securities as collateral to raise cash from investors. It was last quoted at 1.15-1.20 percent, compared with 0.95 percent, according to ICAP data.

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 effort on Oct. 14.

Reporting by Richard Leong; Editing by Chizu Nomiyama

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