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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

#91

Post by _gmax0 »

HDThoreaun wrote: post #66
almog wrote: post #56

Earlier quoted context omitted.

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 SV…

Man, these are the times I wish I had access to Bloomberg Terminal.

What bond-selection strategies do banks usually take in situations like this? Riskiest bonds off of their sheets first?

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

#92

Post by cinquemb »

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.

Fed balance sheet run off since april 2022 has nearly been offset by TGA drawdown until this point, so arguably, there's barely been any QT.

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

#93

Post by lazide »

fosk wrote: post #72
prasadjoglekar wrote: post #55

Earlier quoted context omitted.

Inflation was there all along in asset prices - why else have home values gone up disproportionately relative to average Joe's income? What the Fed is doing with this move is patching the balloon and preventing a deflation. That is, bank has a run on deposits because people want their money back; bank is out of liquid cash; bank sells bonds/MBS that have mark-to-market less than par thus realizing losses. The downstr…

Housing prices were going up because of supply/demand and not necessarily because of systemic high inflation. By the way just with regular Because homes cost a lot of money to begin with, the compounding effects of “healthy” inflation is going to be noticeable, and that doesn’t even factor in the low supply in the market.

Demand was increasing because money was very easy to get.

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

#94

Post by HDThoreaun »

iforgetti wrote: post #84
HDThoreaun wrote: post #57

Earlier quoted context omitted.

The interest rate on the loans is .1% higher than the 3 month T bills which is all they can get before the loan comes due. They would lose money with this strategy.

But if they are using bonds which the fed has valued at face value rather than market value as collateral then this is still effectively free money. They are only losing .1% of bond value instead of the difference between face and market value.

I think you misunderstand what is happening here. It's not free money, it has a 4.7% interest rate. Taking this loan and using it to buy bonds would just be transferring .1% of the loan value to the fed as the bonds would pay out less than the banks owe.

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

#95

Post by Retric »

antibasilisk wrote: post #87
almost_usual wrote: post #6

Earlier quoted context omitted.

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.

>It’s a loan, not QE QE is literally just funky loans.

No QE is purchasing something not a loan. https://en.wikipedia.org/wiki/Quantitative_easing.

QE creates money from thin air when distressed assets fail. This doesn’t because the asset is still on the banks balance sheet and can thus cause the bank to fail. Which is a critical distinction.

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

#96

Post by antibasilisk »

pessimizer wrote: post #75
fallingknife wrote: post #35

Earlier quoted context omitted.

[flagged]

[flagged]

Nobody is suggesting they're conspiring, they're just pointing out that certain people have a pattern of actively denying what their own reasoning would lead them to conclude and instead of at the very least remaining neutral, they choose to favor of a narrative that conveniently aligns with those of government officials

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

#97

Post by lazide »

HDThoreaun wrote: post #41
almog wrote: post #32

Earlier quoted context omitted.

It's a loan whose collateral is taken at par value rather than market price, which essentially increase the Fed's balance sheet. As of Wednesday last week, 4 months of QT have been reverted in a single week: https://fred.stlouisfed.org/series/WALCL

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.

The reason they need this money is because of drawdowns in deposits - money now entering the economy.

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

#98

Post by pclmulqdq »

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 because of what they count in the CPI. Staple foods, education, and housing aren't counted, and healthcare counts once a year.

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

#99

Post by lazide »

qeternity wrote: post #63
almost_usual wrote: post #6

Earlier quoted context omitted.

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?

They buy bonds offered for sale without looking much at all at them.

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

#100

Post by matheusmoreira »

MuffinFlavored wrote: post #89
matheusmoreira wrote: post #60

Earlier quoted context omitted.

There may be strings attached but it's still a massive loan that inflates the money supply.

What would the alternative have been? Don't lend it/provide it for banks and let ________ play out instead where _______ is defined as ________.

Not lending money to banks and letting them fail when their "safe" investment strategies fail.
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