Despite all the innovation in the app economy for matching supply and demand for physical services (think: Uber surge pricing), there is no equivalent for balancing distortions in funding markets in real time.
The world of "intraday" funding—in other words, cash borrowed during the day, as opposed to overnight—remains highly dependent on excess liquidity from central banks, even as Federal Reserve officials move to accelerate the rate at which this is to be withdrawn over September and October. Once this de facto free liquidity is retracted, funding shortages could easily appear again, potentially toppling over into overnight and longer-term markets. If they do, market participants will have to come up with their own solution—or go, cap in hand, to the Fed and risk stigmatization.
Believe it or not, the world of crypto—which has never had recourse to a lender of last resort—may now offer inspiration on how to navigate this tighter environment.
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