We've come a long way from stress tests I see
Statement Regarding Repurchase Operations
11–20 of 141 posts
Re: Statement Regarding Repurchase Operations
#12To retry my earlier comment[1]:
The Fed is nobly ensuring banks' 2.25% APR ("target federal funds") rate against being viciously squeezed to 9%.
Over three weeks.
That means banks are, at most, saved from having to pay an (extra) interest charge of $3.6 million per 1 billion (revolving) dollars borrowed. [2]
That ... still seems like a rounding error against their typical quarterly profits, considering it's a one-time anomalous event.
Is that really something that justifies extreme Fed measures?
[1] https://news.ycombinator.com/item?id=21000023
[2] computed from 1,000,000,000(1.09^(3/52) - 1.025^(3/52))
Re: Statement Regarding Repurchase Operations
#13We've come a long way from stress tests I see
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Re: Statement Regarding Repurchase Operations
#14I wish I understood what this meant. From my primitive understanding, we have too much money concentrated in too few people trying to make unrealistic returns, so they hold on to it rather than invest it. Does this move mean that the fed is trying to keep its benchmark rate too low and absent market forces it would be much higher?
> Does this move mean that the fed is trying to keep its benchmark rate too low and absent market forces it would be much higher?
Fed used to maintain a corridor system, in that they would intervene if effective fed funds went higher or lower than their target. They moved to a floor system, in which they attempted to set a single rate by paying banks interest on reserves (IOER) held at the Fed. For roughly a decade, this worked (a certain arbitrage helped convert this rate from a floor into a ceiling). Recently, effective fed funds has risen above IOER, but Fed was not conducting reverse repo operations to push this down.
Re: Statement Regarding Repurchase Operations
#15To retry my earlier comment[1]: The Fed is nobly ensuring banks' 2.25% APR ("target federal funds") rate against being viciously squeezed to 9%. Over three weeks. That means banks are, at most, saved from having to pay an (extra) interest charge of $3.6 million per 1 billion (revolving) dollars borrowed. [2] That ... still seems like a rounding error against their typical quarterly profits, considering it's a one-tim…
It’s to prevent a cascading failure due to a rapid loss in confidence requiring even greater action from the Fed (such would occur if interbank lending dries up because of counterparty risk [perceived or actual]).
Disclaimer: I work in financial services, but am not involved in these operations.
Re: Statement Regarding Repurchase Operations
#16Smoke and mirrors and games...
Hey, it's all fun until 14 million people lose their homes again right? /s
Re: Statement Regarding Repurchase Operations
#17To retry my earlier comment[1]: The Fed is nobly ensuring banks' 2.25% APR ("target federal funds") rate against being viciously squeezed to 9%. Over three weeks. That means banks are, at most, saved from having to pay an (extra) interest charge of $3.6 million per 1 billion (revolving) dollars borrowed. [2] That ... still seems like a rounding error against their typical quarterly profits, considering it's a one-tim…
It’s to prevent a cascading failure due to a rapid loss in confidence requiring even greater action from the Fed (such would occur if interbank lending dries up because of counterparty risk [perceived or actual]). Disclaimer: I work in financial services, but am not involved in these operations.
I vaguely remember my macroecon class in college so many moons ago. The point is to stop a “contagion” from spreading and causing panic, right?
Re: Statement Regarding Repurchase Operations
#18Earlier quoted context omitted.
It’s to prevent a cascading failure due to a rapid loss in confidence requiring even greater action from the Fed (such would occur if interbank lending dries up because of counterparty risk [perceived or actual]). Disclaimer: I work in financial services, but am not involved in these operations.
I vaguely remember my macroecon class in college so many moons ago. The point is to stop a “contagion” from spreading and causing panic, right?
Essentially. Read about the 2007-2008 GFC [1] to understand how fast the system can break down (weeks). Personally, I find the story of how JP Morgan (the financier) first acted as this sort of national economic backstop in 1907 very interesting and a fun read [2].
[1] https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80...
Re: Statement Regarding Repurchase Operations
#19Wow this is not good. Repo market is the market of overnight debt between banks. Banks lend money to each other to cover their collateral needs/exposures at the end of each day. If banks lose confidence in each other, they start demanding more collateral from each other in the overnight market, which means the overnight rate goes up. The NYFed is trying to keep interest rates down and is having trouble doing it. As a…
I don't think that's whats happening. Basically, in a repo you have one party posting a treasury bond as collateral and being lent the equivalent amount of cash. There's an interest rate you're charged on the cash, and potentially a "haircut" on the amount of cash relative to the value of the bond that a bank might take if they decide the other party is a risk and they want more collateral posted.
What you're describing is an increase in "haircuts" in these transactions between banks, but I haven't heard anyone report that has been happening. It has been, more simply, that too many people are showing up with bonds and want cash and too few people are showing up with cash and want to lend it. So the interest rate has risen
Re: Statement Regarding Repurchase Operations
#20This is great for bitcoin.