We still don't know what caused the Wall Street cash crunch earlier this year

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Big banks and hedge funds helped fuel disruptions in the overnight lending markets a few months ago, the Bank of International Settlements said in a report.

However, the BIS said that while those two factors help explain some of the problems, they fall short of a full accounting.

Other factors the institution cited include the heavy reliance on the "Big Four" banks for funding, the increased role that hedge funds are playing on the demand side for funding, and the adjustments that market participants are making following an extended period of ample reserves that has changed over the past two years.

Fed officials have puzzled over the banks' unwillingness to lend into the market when the Sept. 17 disruption happened. Discussion has centered around the role that post-financial crisis capital regulations have played as well as the interest the Fed continues to pay on bank reserves.Specifically, in the event that the Treasury continues to draw reserves down, banks will be unlikely to want to release theirs.

 

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