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Federal Reserve lent $300B in emergency funds to banks in the past week

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Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#61

Post by cvoss »

StopHammoTime wrote: post #5

Id be curious to know how much physical currency has been withdrawn and if there are pressures on that. Inter-bank deposits are covered for people fleeing bad banks, but anecdotally I know a few people who are withdrawing all their hard cash. I wonder if central banks will have issues with that soon.

> anecdotally I know a few people who are withdrawing all their hard cash

Why (anecdotally)? Even if the bank holding your checking/savings account fails, the US federal government insures you up to $250k. And that promise is an important one for the government to make precisely because it tips fear/security scales so that people don't do exactly what your friends are doing, which is contributing to the risk of a bank run. Do your friends actually believe the Federal Reserve itself is at risk of failure? What's the scenario they're betting against?

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#62

Post by fuoqi »

arthurcolle wrote: post #51
fuoqi wrote: post #48

Is there anything preventing banks from buying treasures on open market by using funds they got from Fed by exchanging their treasuries on mark-to-maturity basis? Looks like a bailout with extra steps.

Can you explain the steps that you're thinking and explain why they would matter at this scale?

A bank has 10 year bond which trades 90 cents on the dollar on the open market. It gives the bond to Fed as collateral and receives 1 dollar. It uses this dollar to buy bonds on open market with rate higher than cost of the loan, after 90 days it sells the bond, gives the Fed 1 dollar and interest, and pockets the rate spread on 10 cents.

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#63

Post by qeternity »

almost_usual wrote: post #6
Findeton wrote: post #3

This is another QE/Quantitative Easing, even if they don't call it that way. I hope inflation doesn't come back/get higher again because then we'd likely see the kind of second wave inflation people saw in the 70s.

It’s a loan, not QE. QE is no strings attached money injected into the market. QT is still ongoing as of last week, however, I don’t see it lasting. I do think a .25 rate hike will still happen.

> QE is no strings attached money injected into the market.

Um what? How does the Fed inject no strings attached money into “the” market?

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#64

Post by fosk »

rqtwteye wrote: post #52
fosk wrote: post #45

Earlier quoted context omitted.

As long as the regular Joe doesn’t get extra money to spend, inflation will be check. Banks won’t go buy eggs anytime soon. We had close to 0% interest rates for almost a decade, and inflation was in check. It’s not the Fed that caused inflation, it is: * Suspending school debt (extra income) * Injecting real cash into the economy (stimulus checks and PPP loans to small businesses) * Supply chain bottlenecks after Co…

I don’t really understand the inflation situation. When house prices shot up, heath care costs shot up, education costs shot up there was no inflation. But when the little guys got some money, suddenly we call it inflation. I don’t really get it.

When you give to 300+ million people extra cash to spend, you have inflation, yes.

I am not arguing that “before” it was better for the “little guys”, I am just making an observation.

You can affect the economy with fiscal policy (what our politicians/government does) and monetary policy (the central bank). Turns out monetary policy didn’t cause inflation to rise as much, as the previous 13 years demonstrate, but it was caused by liberal fiscal policy after Covid (all those points that I mentioned + supply chain bottlenecks).

The fact that our government blames the Fed is just scapegoating. They messed up big time, and acted quickly in such a way that they were not able to coordinate properly (rates should have gone up in light of liberal fiscal policies being implemented). These two entities don’t work and collaborate well together, and hindsight is 20/20.

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#65

Post by tootie »

monero-xmr wrote: post #30
StopHammoTime wrote: post #5

Id be curious to know how much physical currency has been withdrawn and if there are pressures on that. Inter-bank deposits are covered for people fleeing bad banks, but anecdotally I know a few people who are withdrawing all their hard cash. I wonder if central banks will have issues with that soon.

[flagged]

BTC dropped 30% in the last twelve months. If anyone was actually relying on it we'd be in a hyperinflation spiral right now.

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#66

Post by HDThoreaun »

almog wrote: post #56
HDThoreaun wrote: post #41

Earlier quoted context omitted.

It's a loan that will be paid back within 90 days. Most for the money won't enter circulation and is only a liquidity backstop for banks. The rest of the money will be gone in a few months. This is extremely different from traditional QE which involves buying long dated bonds.

True, I'm just not sure what's the plan after these 90 days have passed other than more loans, any idea? If the Fed suddenly cut rate aggressively that would be one way for banks to restore liquidity but I cannot see that happening while inflation still running hot.

I think the plan is the banks use these 90 days to sell their less liquid assets that aren't as effected by the interest rate increase. In the end, even being insolvent isn't actually a death knell for banks as long as depositors believe the money will be paid back, which is why the government is putting so much effort into reassuring that 0 deposits will be lost.

Also half the money was literally just to pay back SVB and signature deposits while they unwind their book. Once everything is sold the other FDIC member banks will have to pony up any extra cash to pay the loans back.

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#67

Post by colpabar »

rqtwteye wrote: post #52
fosk wrote: post #45

Earlier quoted context omitted.

As long as the regular Joe doesn’t get extra money to spend, inflation will be check. Banks won’t go buy eggs anytime soon. We had close to 0% interest rates for almost a decade, and inflation was in check. It’s not the Fed that caused inflation, it is: * Suspending school debt (extra income) * Injecting real cash into the economy (stimulus checks and PPP loans to small businesses) * Supply chain bottlenecks after Co…

I don’t really understand the inflation situation. When house prices shot up, heath care costs shot up, education costs shot up there was no inflation. But when the little guys got some money, suddenly we call it inflation. I don’t really get it.

It’s okay. I doubt anyone in this thread does either. Thank god the good guys have the presidency or else all this not inflations and not bank bailouts might have been a bigger deal, am I right?

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#68

Post by iforgetti »

arthurcolle wrote: post #51
fuoqi wrote: post #48

Is there anything preventing banks from buying treasures on open market by using funds they got from Fed by exchanging their treasuries on mark-to-maturity basis? Looks like a bailout with extra steps.

Can you explain the steps that you're thinking and explain why they would matter at this scale?

A bond bought by a bank in the past at a lower interest rate than those offered today is worth less than those offered today.

If the fed values those bonds at face value (rather than what the market would pay today) and allows the bank to borrow money using those as collateral, then a bank could simply borrow from the fed using the older less valuable bonds as collateral and then buy new more valuable bonds.

The bank could then default on the loan and forfeit the original less valuable bond.

This would effectively be the fed giving free money to the bank.

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#69

Post by DANmode »

Findeton wrote: post #3

This is another QE/Quantitative Easing, even if they don't call it that way. I hope inflation doesn't come back/get higher again because then we'd likely see the kind of second wave inflation people saw in the 70s.

/me glances over at BTC

Re: Federal Reserve lent $300B in emergency funds to banks in the past week

#70

Post by tripletao »

luckylion wrote: post #2

Why are we even doing the dance that banks need to keep short term assets on hand to satisfy deposit outflow? Can't they just buy whatever government bonds they want (if the federal government defaults and does not honor its debt there are bigger issues than some regional bank) and give them to the Fed in exchange for freshly minted money? It's the end result in either case, but a lot of uncertainty and friction is a…

Under previous policy, the Fed would lend only against the market value of an asset. The FMV of a long-term bond declines when interest rates increase, so that didn't help. This is roughly how the SVB failed.

Under new policy, for the next year, the Fed will lend against the par value of certain assets purchased before the crisis. That's an undercollateralized loan, so it's a subsidy to banks that took excessive interest rate risks. Those banks are still worse off than if they hadn't taken that risk though, since the interest cost of the loan is greater than the interest paid by the asset.

This policy change has no direct cost to the public if the loans are repaid. If a bank gets such a loan and then fails anyways, some losses will be socialized.

https://www.federalreserve.gov/newsevents/pressreleases/mone...

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