Banks scramble to raise cash after Fannie Mae cuts
NEW YORK, March 5 (Reuters) - Banks scrambled to raise cash this week after U.S. mortgage finance agency Fannie Mae abruptly slashed the number of financial institutions that hold its funds, market sources said on Friday.
The move forced banks dropped by Fannie Mae to liquidate Treasuries and other short-term securities and borrow in the open market so they can return money Fannie Mae had with them, they said.
The banks had to collectively raise $100 billion to pay back Fannie Mae, said an analyst who declined to be identified.
The cash scramble on Wednesday and Thursday led to a spike in overnight interest rates on federal funds and repurchase markets to their highest levels since December.
It is unclear why Fannie Mae made the sudden move to reduce the number of banks to hold its cash.
Nearly all the financial institutions cut by Fannie Mae were foreign banks, market sources said.
Fannie Mae has declined to comment on the matter.
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