Would it work theoretically?
Discussion
theoretically yeah…the big issue is term mismatch. these banks need to sell bonds now to cover withdrawals, so they are forced to sell them at a discount which is eating into their equity. if they were held to term they wouldn’t lose nominal money. the Fed could step up and buy them at par and hold them to term.
Another new way for the fed to distort pricing of risk and adding more moral hazard to the immense pile it has already created.