[jyl]

RRP rate raised from zero to 0.0005%, naturally this attracted more overnight cash from money market funds and banks. Reflects money market funds having more cash inflow than they can find high quality short-duration investments to buy, and banks, particularly the largest banks, having more cash deposits than they can find loans to make. The financial system is swimming in cash and short rates are near zero, so these institutions park cash at the Fed overnight.

I am having trouble seeing why an excess of cash at large banks and money market funds is something to be very alarmed about. I get that it is a symptom of surplus cash in the financial system, which we already know about. But how does, say, JPM having $500BN of excess cash sitting in its Fed checking account threaten to bring down the economy? What is the direct mechanism for that?