Sen. Elizabeth Warren said she is worried that banks may try to use the recent tumult in short-term lending markets as an excuse to get regulations eased on the industry. In a letter to Treasury Secretary Steven Mnuchin, the Massachusetts Democrat and presidential contender pointed to the mid-September repo market turmoil and the causes that have been cited for the issues, such as a rush of corporate tax payments and government bond auction settlements that drained money from a system that usually functions smoothly. A cash crunch in the system saw overnight lending rates spike, with the repo rate briefly hitting 10%.

Other discussions of the funding issues have centered around banks and whether they are too reluctant to part with cash that would be used in repo, where banks go to get overnight funding. Warren, a member of the Senate banking committee, said she is "concerned" about that issue and whether Wall Street institutions will try to assert that liquidity regulations imposed after the financial crisis are too strict and interfering with lending market functions. "These rules were designed to ensure that banks have enough cash on hand to meet their obligations in the event of another market crash," Warren wrote in a letter dated Friday and released Tuesday. "Banks are reporting profits at record, levels, and it would be painfully ironic if unexplained chaos in a small corner of the banking market became an excuse to further loosen rules that protect the economy from these types of risks." The Treasury did not immediately respond to the Warren letter specifically. A spokesman referenced unspecified remarks last week from Mnuchin on the repo issue.

Treasury Secretary Steven Mnuchin arrives to testify before a House Financial Services Committee hearing on Trump administration efforts to remove Fannie Mae and Freddie Mac from government conservatorship on Capitol Hill in Washington, U.S. October 22, 2019. Julio Cortez | Rueters