BTFP is cash loans for Treasuries.
It allows financial institutions to turn T-bills into cash without selling them.
The Fed isn’t printing money to buy impaired assets. The Fed is loaning money, which will be drained out of the system again 12 months from now.
It's a figure of speech. They are making secured and unsecured depositors whole, no one will feel pain and no one will learn.
That's where I think you're wrong. The equity holders are getting wiped out and taking all the losses.
I don’t think they are making anyone whole?
The banks have the asset value on their books. This isn’t an FTX situation.
Fed is just offering zero interest loans in exchange for staking Treasuries at FRBNY.
It means institutions can get cash immediately by staking treasuries without having to sell their treasuries.
Fed is really protecting SovX
The equity holders are fucked. As they should be.
Yep. Unsecured debt holders too.
Yeah. I mean, there's plenty of reasons to be mad at how our financial system works, and how it unfairly benefits certain people to the detriment of others, without having to make shit up to serve a narrative.
Moi?
I don’t think we have disagreed anywhere?
Sorry. That wasn't directed at you. I was agreeing with you and directing my comment at others who are ... making shit up.
How is this not a bailout? Isn't giving a 0% loan in a time of higher interest rates doing someone a solid? It's like getting fronted a pound. Even the streets call that Love.
It’s not 0%.
It’s overnight swap rate + 10bps.
https://www.federalreserve.gov/newsevents/pressreleases/files/monetary20230312a1.pdf
Wow. Stop narrative-violating with fact, Stu. j/k
Thanks for the real numbers. It's still Love , it ain't Prime. And how is it still not a bailout accepting the collateral at par value...
Only institutions get this type of treatment when they screw up...
It seems they're not trying to help the institutions at all, but the depositors?
The depositors are large Silicon Valley VC backed startups and Crypto companies. Those to me are still large institutions. I wonder when the last time little ol Farmer's United or Coal Workers Bank Of Corbin were bailed out in this way?
There are plenty of banks that have run into this issue, I wonder what their options were for their little ol depositors? I need to do some research but I can't see it being such a big issue...
Per Guy LeBas:
The key part here is the Fed agreeing to lend against bonds at par (!) essentially neutering any feedback loop between bank securities portfolio losses and liquidity.
Well, while the three crypto banks have already been shuttered, other institutions that perhaps should also fail will not because of newly announced infinite backstop/bazooka from fed.
Infinite backstop bazooka?
Is that what you call the $25bn capped, 12 month limited, Bank Term Funding Program they announced today?
This program is small by recent standards. QE was $85 billion per month and it ran for 5+ years.
QE was equivalent to doing BTFP every single week for 5+ years!
So a little context here, please.
You personally can sell any Treasuries you have at par value because you are small enough to not test the liquidity of the UST market.
So BTFP is of zero use to you. You would be stupid to use it, even if you had access to it.
An institution is big, and selling at par might not be possible if the liquidity of the bid side of the book isn’t strong enough to support their selling.
The Fed is taking a precaution in the event that UST liquidity is too weak tomorrow to accommodate orderly liquidation of bonds to finance deposit withdrawals at some banks.
The crazy thing, is the Fed started this issue for SVB, by aggressively raising rates, making SVB's balance sheet weaker.
Now they want to play clean up. It's like they either explicitly know what they are doing, or they have no clue!!
The domino train begins and ends with the Fed.
They had to raise rates. If they hadn't, we'd have like 20%+ inflation right now.
And they are going to have to lower them or the debt will go higher much faster.
They need GDP to grow faster than debt in order to avert a Malthusian event.
If debt/GDP gets too high then the cost of servicing your debt can accelerate faster than your ability to service it and ultimately outrun you.
This is how South American currencies collapse.
So the Fed actually needs high inflation in order to bring down debt/GDP ratio because GDP inflates with inflation, whereas debt does not.
They probably want 5-10% inflation, not so hot to trigger capital flight but hot enough to inflate away some debt.
Not sure they will touch rates. They will use esoteric tools now that they have the patient sedated and the thorax open.
They are always lagging what's really going on. Inflation was a product of supply chain issues. The balance was jacked after the pandemic shutdowns.
Squeezing too hard is slowing down the minuscule growth we already seeing. Choking off growth in this environment seems like a formula that will wreck the small guy, more than inflation will.
The Fed exists to fight inflation and to mop up the stains on the carpet left by all the banks that get rekt in the process.
That’s what the Fed is.
They’ve been killing banks for 90 years. It’s literally what they do. They knew exactly what they were doing, and they told everyone “this is what we are doing”.
This is the Central Bank system.
Then why intervene selectively. If they are meant to kill banks. Why not allow the market to work itself out?
Maybe there should be way more banks, smaller more local banks so that you don't keep having these single points of failure.
These were smaller, regional banks ...
SVB was the 16th largest bank by deposit base in the country
I’m not sure what you mean?
They haven’t intervened in SVB or Sovereign bankruptcies.
They’re merely providing a means of overnight UST liquidity without going to the bond market.
Again, it's the institutions they bank that triggered the response.
I don't mind them dying, but let them all die or save all depositors. This feels selective due to who was depositing there.
See my earlier comment about farmers and coal miners...
#[7]
That's not the point. The point is there should be far more banks. It shouldn't be so hard to get chartered. Free the market and will have less of the single points of failure and the good banks will rise to the top.
TBF, I think there is good reason to be confused here given the wording in the announcement. Even Tuur Demeester and Caitlin Long are calling this a "bailout".
Caitlyn Long specific noted that valuing the assets at *par* is the bailout.
It's weird to call it a bailout, when the regulators literally walked through the front doors and put these institutions into receivership. Acting like it's outrageous that the government would protect depositors, when anybody who isn't an anarcho-capitalist or extreme libertarian is, has obviously been sleeping through the whole part where, yes, we have regulatory bodies with the legal mandate and authority, authorized by Congress, to protect depositors in events exactly like this.
So why the difference between uninsured and insured deposits?
Origin of that policy relates to the size of uninsured deposits enabling different risk taking than that of insured deposits
I think I'm done for the day arguing with anarcho-capitalists and extreme libertarians who are primarily concerned fitting these events into a political narrative, rather than adjudicating them on the merits.
I for one am genuinely just not very smart and am trying to figure out what's happening. I don't know where to look and I largely depend on folks who have historically checked out with integrity and proficiency in this area. I think you might be misinterpreting folks like myself.
Maybe not you. But a lot of people are trying to turn this is to a political cudgel, and many in so doing, are just making shit up without any regards to the facts.
I mean the bitcoin sphere does seem full of libertarians and anarcho-capitalists... It's kind of what you should expect.
#[10]
Here is a list of qualifying collateral.
Are any of these assets trading below par?
😂😂😂
The current value of their treasuries aren’t whole so they don’t have the balance sheet to support withdrawal requests.
If they could hold to maturity fine but they clearly can’t. How many other banks are fucked in the same way.
The book valuation is fine.
The problem is that the bond market isn’t liquid enough to support a run of deposit withdrawals.
The Fed is offering a way for banks to get cash liquidity from their bond holdings without selling bonds.
That makes it clear. Think the solution is a good one?
Not really.
Any bank who is known to touch that discount window, risks suffering a withdrawal run.
Strong banks don’t need it.
Of course…it’s a…
Still sounds a bit like printing money for a market with no buyers.
Daily traded volume for US Treasuries is about $500bn.
If there are $100bn of withdrawals tomorrow and banks have to liquidate bonds to provide liquidity for those, then that’s gonna crater T-Bills and push interest rates higher.
So the Fed has stepped in and offered a route for banks to get cash without selling their UST.
Lots of money will move tomorrow, some banks will struggle, but UST should be solid and interest rates and money markets should be insulated.
I understand the solution but I think it weird manipulation of markets by government has appearantly been so normalized. And I would understand you don't see this is manipulation because it a 'loan' but it isn't healthy either.
Yes. Regulated markets are by definition "manipulated" by regulators. The sky is also blue.
It’s always been this way.
This is a $25bn program. It’s small in the scheme of Open Market Operations.
QE ran for 5 years and was $85bn per month.
Also QE was asset purchases and not loans. Meaning QE liquidity injections stayed in the system indefinitely, whereas BTFP will be repaid and drained from the system within a year.
Where is the money coming from that they are loaning out? Drained in 12 months or not it still seems it is in fact printing in the short term.
That’s what a loan is.
When you go to your Main St bank and they give you a loan. They create that money right there in front of you in the branch.
Most of the money in the system is created by commercial banks and not the Fed.
