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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

#71

Post by pgwhalen »

almog wrote: post #32
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 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

You are uninformed. The fed facility discussed in the post is the discount window, a century old program.

The new facility is the Bank Term Funding Program. It won't be revealed how much this facility is used for a year.

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

#72

Post by fosk »

prasadjoglekar wrote: post #55
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…

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.

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

#73

Post by fuoqi »

HDThoreaun wrote: post #57
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.

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.

They can buy longer duration bonds and sell them before the loan is due or even corporate bonds. Yes, it introduces certain risks, but with the endemic banks irresponsibility constantly bailed out by the government, I will not be surprised. But I guess, possible spreads are a bit too small for this scheme to matter.

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

#74

Post by HDThoreaun »

iforgetti wrote: post #68
arthurcolle wrote: post #51

Earlier quoted context omitted.

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…

You can't just "default on a loan." The Fed would reposes their other assets...

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

#75

Post by pessimizer »

fallingknife wrote: post #35
dools wrote: post #10

Earlier quoted context omitted.

QE has no impact on inflation because loan origination is not reserve constrained, because banks can always use their government securities as collateral

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

#77

Post by Zetice »

yieldcrv wrote: post #15
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.

its a 0% loan (edit: 4.68%) at a 100% loan to value ratio, actually at par value not even the current market value, and if the banks don't pay then the fed seizes the collateral this is QE with extra steps

I know "QE with extra steps" is a R&M reference, but keep in mind that R&M was wrong, what they described wasn't actually slavery (you can make anything anything else if you squint hard enough and/or remove the critical "extra steps"), and this isn't actually QE (as I, random Internet dweller, understand it anyway).

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

#78

Post by pgwhalen »

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.

Of course there is. Assuming you're referring to the new Bank Term Funding Program (which this article is not referring to), collateral is only eligible if it was owned before the program began.

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

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

#79

Post by 29athrowaway »

inconceivable wrote: post #28
ClumsyPilot wrote: post #4

Earlier quoted context omitted.

Banks lend money to the US government so that a different branch of government can loan the money again to the banks? The whole thing sounds like a charade

wait until you realize that the deposits that first republic received last week came from the big 4 banks... which were flush from cash they received from transfers from smaller banks like first republic. we are living in financial clownworld now.

https://youtu.be/1aVYJ-krSMA?t=5

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

#80

Post by haileys »

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…

> and give them to the Fed in exchange for freshly minted money?

Is this not essentially QE?

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