REITs are not the largest borrowers on the repo market

I have a nit to pick with Tracy Alloway’s recent reporting on the repo market. She writes:

What remains of the $4.2tn market is increasingly being taken up by non-bank entities such as real estate investment trusts (Reits), mutual funds and hedge funds . . . The growing use of repo has been particularly marked among Reits, which have overtaken banks and broker-dealers as the largest borrowers in the market, according to Federal Reserve data. To purchase long-term mortgage assets, Reits have increased their repo borrowings to $281bn, up from $90.4bn in 2009. Closed-end funds, which invest in assets ranging from corporate bonds to municipal debt, also have increased their borrowing in the repo market, from $2.74bn at the end of 2007 to almost $8bn now, according to Fitch Ratings data.

Her data is apparently derived from the flow of funds data, which states that in Dec 2013 REITS has $281 bn in repo borrowings and broker dealers had $135 bn in *net* repo borrowing.

If REITs had indeed “overtaken” banks and broker-dealers as the largest borrowers in the market with a share of $281 bn, it would be very hard to explain how the market could possibly be a $4.2 tn market. In fact, of course, the broker-dealers are using their own (government supported) creditworthiness to intermediate access to the repo market for their customers, who don’t have the credit to borrow directly on the tri-party repo market. For this reason, it is almost certain that broker-dealers remain the largest borrowers on the market. In fact on page 170 of JPM’s 2013 10-K we find that this one bank had $156 bn of borrowings in the repo market. GS 10-K has $165 bn in such borrowings (p 173).  In short, the fact that the broker-dealers are intermediating access to credit should not be used to obfuscate the fact that they are the largest borrowers on the repo market.