Money Markets Show Relief as Fed Hints at Bank Capital Tweak (2)

A Federal Reserve official’s comments last week have resonated through short-term U.S. funding markets, spurring optimism that further central bank action could help maintain the calm seen since September’s chaos.

Vice Chairman Randal Quarles on Thursday outlined possible tweaks that could help money markets function better, including easing year-end pressures by changing how large banks calculate a surcharge of additional capital requirements during that period.

Traders cheered his speech by sending the FRA/OIS spread, a benchmark measuring the difference in rates between forward-rate agreements and overnight index swaps, tumbling. The December contract -- where year-end premiums manifest -- tightened the...