A $53 billion crack just emerged in the financial markets...

[Amishman]

32. The overnight rate is all about liquidity, not overall financial position

The hypothesis stated in the article is solid, banks being temporarily tight on liquid funds due to quarterly payments and insufficient funds allocated by the Fed to anticipate.

Add in potentially additional draws by trading houses who bet badly on the oil price spike and ebb, as they need to borrow to cover.

For those unfamiliar, liquidity refers to the immediate availability of funds. If I own several nice houses but have only $500 available in my checking account, I am wealthy but have very poor liquidity.

To use a credit card example: the federal reserve is the credit card company and they set the credit limit. They potentially set the credit limit too low, incorrectly anticipating the overall draw. They essentially had to temporarily raise the credit limit. Given that this is a 24 hour intervention, any ongoing liquidity / insolvency problems would persist - which it appears it has not as the draw and market rate has stabilized.

To explain further, overnight borrowing is how banks balance their available cash on a daily basis. If a bank has a surplus from the day's activity they lend to another bank who was down that day. It is very common for a bank to borrow one day and lend the next