When U.S. regulators moved to bail out Bear Stearns, it wasn’t the foundering investment bank they were worried about. Rather, they hoped to protect the Bank of New York and JPMorgan Chase because of their role in tri-party repo, according to The Financial Times.
A domino effect induced by Bear Stearns’ collapse could have endangered the entire tri-party repo system, which is handled primarily by the Bank of New York and JPMorgan Chase. The concentration of billions of dollars worth of funding agreements in the two banks posed a risk to the entire financial system that the Fed wanted to avoid. U.S. govrernment officials have indicated in recent weeks that they hope to reform the tri-party repo system.