[ Howard Haykin ] U.S. bank regulators are trying to wrap their arms around a $1.7 trillion market that is relatively unknown beyond the expansive Wall Street community.  This is the same market that came under deep duress during the 2008 financial crisis and in order to prevent a recurrence or relapse, the federal is trying to lower the risk exposure. Fed supervisors have been pushing the big banks to invest more aggressively in the technology to help reduce their risks.  Some regulators have informally discussed the idea of having the industry's new watchdog, the Financial Stability Oversight Commission, designate the entire market "systemically important" and in need of closer oversight, according to several people familiar with the matter. The oversight commission, which responsible for overseeing the broader safety of the financial system, hasn't taken any action, and it's unlikely that they may do so in the near future.  That doesn't mean the commission doesn't view the market as an area of concern - which it does. Wall Street Banks Respond. Banks have been told by Fed supervisors that without progress they (the fed) could demand that the business be spun out of the big banks and run through a supervised utility.  Such a move, the banks say, would pose complicated challenges which supervisors at this point don't appear to have embraced. The Triparty Repo Market. Triparty Repurchases Agreements, or Triparty Repos, make up a nearly $2 trillion market that's used by large institutions to fund their trading businesses - Wall Street firms like BNY Mellon and JPMorgan Chase.  In a triparty repo trade, Wall Street brokers and other financial institutions - e.g., Goldman Sachs, Morgan Stanley, Deutsche Bank - that don't have access to traditional customer deposits turn to money-market mutual funds ("MMFs") run by such companies as Fidelity Investments, Federated Investors Inc. and Vanguard for short-term loans. The brokers pledge their securities portfolios as collateral for the loans, and the two big clearing banks stand as middle men in the swap of cash for securities.  BNY Mellon is by far the bigger player of the 2 big clearing banks, with a market share several times larger than JPMorgan's. Big Concern for Regulators. A problem to regulators is that the trades between brokers and MMFs don't overlap perfectly, leaving the brokers in need of funding for a few hours every day.  The big clearing banks provide it, exposing them and their trading partners to large and concentrated risks if markets become unstable as they did in 2008.  Moreover, large and important pools of securities, including U.S. Treasury bonds and mortgage-backed securities, are used as collateral in the triparty repo market and could be disrupted in a panic. So far a task force formed to addressing these problems, has not yet taken any specific steps to eliminate the exposures of the banks.  The task force consists of banks, investors and industry representatives.  Supposedly a deadline had been set for sometime in 2011, but that date came and went.  Then, the task force issued a February report, in which it noted that some of its goals won't be met until 2016.  Fed officials have openly expressed their disappointment with the task force. Daniel Tarullo, a new Fed governor, had this to say during a Tuesday speech: "An industry initiative to address the issue led to some important operational improvements to the triparty market, but, to be frank, fell short of dealing comprehensively with this problem.  So it now falls to the regulatory agencies to take appropriate regulatory and supervisory measures to mitigate these and other risks." Dealers and banks are working to adjust massive, complicated technology systems.  But at some point, "throwing money and bodies at the problem doesn't work," said a person involved in the matter at one bank.  "At some point, people need time." For further details, go to:  [WSJournal, 5/4/12].