Jerome Turned On the Printer and Nobody Noticed

[Brian4Liberty]

Jerome Turned On the Printer and Nobody Noticed
The Bank Term Funding Program Just Got Silently Supercharged
FX HEDGE - JAN 7, 2024

Powell & Co. are constantly finding new ways to inject liquidity into an economy running on fumes. This time, they’ve juiced the Bank Term Funding Program, effectively sweetening the deal a bank can get on these emergency loans.

The Fed is offering loans at rates below what it pays to banks who park money in its vaults. A financial institution can theoretically borrow from the Fed at 4.94% as of Friday, January 5, and then earn interest on that money from the same Fed at 5.40%.
...
What’s changed recently to turn the BTFP into an apparent cash cow for banks is that the interest rate the Fed charges on these loans has fallen below the interest rate on reserves.

Suddenly, our hypothetical example above becomes much closer to reality. On top of that, it opens a whole new door for banks that are not in financial straits to make money on this arbitrage.
...
Troubled banks, therefore, likely can’t take advantage of this arbitrage because the margin is just too thin. They need to not only make money on the loan to/from the Fed, but the profit needs to also exceed the losses on their higher interest rate liabilities.
...
But what about those banks that are not in financial straits that we mentioned earlier?

These are almost exclusively big banks like JP Morgan Chase and Wells Fargo, but probably not BoA, since the latter has admitted to $114 billions in unrealized losses and probably has the highest ratio of unrealized losses to total assets among the big banks.

With his ample cash reserve, Jamie Dimon can put those unrealized losses to work and increase his bank’s reserves at the Fed. A few basis points on a billion dollars are nothing to scoff at.
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So, while the BTFP hasn’t quite turned into a universal money-making machine for every institution with primary credit privileges at the Fed, it is growing its clientele - massively.

Remember that at the end of the day, the Fed doesn’t care how the crisis is “resolved,” just as long as there are no riots in the streets. If the bomb can be diffused by the three biggest banks swallowing everyone else, the Fed is happy to make that happen and supercharging the BTFP helps that along.

After all, Treasury Secretary man-hands Janet Yellen has explicitly said further “consolidation” in the banking sector would be a good thing. Maybe it’s all “part of the plan…”
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More: https://www.fxhedgers.com/p/another-bank-bailout-and-no-one-noticed

 

[ClaytonB]

 

[pmbug]

I have been watching this story, but didn't post any updates here as it didn't look like anyone was interested:

http://www.ronpaulforums.com/showth...-to-go-under&p=7201829&viewfull=1#post7201829

 

[acptulsa]

I have been watching this story, but didn't post any updates here as it didn't look like anyone was interested:

http://www.ronpaulforums.com/showth...-to-go-under&p=7201829&viewfull=1#post7201829

I think a sort of shock has settled in. Yes, people appreciate updates very much. But the parade of sabotage and abuse is so egregious and relentless that sometimes people are just at a loss for words. What comment is needed on insanity--or evil disguised as insanity--that we haven't already said thousands of times?

It is good to have you back. I don't know what we're doing here but helping each other maintain touch with reality in a world devoted to turning itself upside down. But that in itself is no bad thing.

And you're right. You put your finger on why I have preferred PM to e-coin all along. Money needs very much to still function, even--especially--if all of the computers crash in an EMP event (for example). Transactions are personal, and no third party should be involved at all.

 

[ClaytonB]

...evil disguised as insanity...

+1

 

[Brian4Liberty]

I have been watching this story, but didn't post any updates here as it didn't look like anyone was interested:

http://www.ronpaulforums.com/showth...-to-go-under&p=7201829&viewfull=1#post7201829

After the big 3 bank failures early this year, the Fed created the BTFP program to support the banks. The BTFP was touted as a temporary measure that is supposed to end in March 2024. However, it looks like a lot of banks are going to be in trouble without it.

And according to the article in the OP, the BTFP program may not be lucrative enough to save smaller regional banks, but will result in the JP Morgan-Chase-Chemical-Bear Sterns-Bank One-Washington Mutual-First Republic Corp buying up more regional banks.

One big bank. Imagine that?

Remember that at the end of the day, the Fed doesn’t care how the crisis is “resolved,” just as long as there are no riots in the streets. If the bomb can be diffused by the three biggest banks swallowing everyone else, the Fed is happy to make that happen and supercharging the BTFP helps that along.

After all, Treasury Secretary man-hands Janet Yellen has explicitly said further “consolidation” in the banking sector would be a good thing. Maybe it’s all “part of the plan…”

 

[pmbug]

Tangentially related:

Federal Reserve Bank of Dallas President Lorie Logan said the US central bank may need to slow down the pace at which it shrinks its portfolio of assets amid scarcer liquidity in financial markets.

While liquidity and bank reserves in the financial system are still more than ample, she said, individual banks could start to see liquidity constraints, especially as balances in the Fed’s overnight reverse repurchase facility fall. Logan said it’s now “appropriate” to begin discussing the parameters around a Fed decision to slow the pace of its balance-sheet runoff.
...

https://www.bloomberg.com/news/arti...ld-slow-asset-runoff-as-reverse-repo-dwindles

Banks having more liquidity problems that the BTFP stealth bailout isn't resolving. Fed having to pivot on QT. Balance sheet explosion was not transient. The Fed has to choose: stoke inflation (allow massive QE to normalize) or kill banks. They will choose door #2. Fed to America: Don't be poor.

 

[Snowball]

I've noticed a LOT of new Chase branches at important intersections in suburban neighborhoods.

God knows what their true purposes are.

Chase is a subsidiary of the Fed owner, the Bank of London.

 

[Brian4Liberty]

I've noticed a LOT of new Chase branches at important intersections in suburban neighborhoods.

God knows what their true purposes are.

Chase is a subsidiary of the Fed owner, the Bank of London.

Easy. One global central bank using a global digital currency. That's their dream. The bigger the bank vault, the more looters that can fit in...

 

[Snowball]

Easy. One global central bank using a global digital currency. That's their dream. The bigger the bank vault, the more looters that can fit in...

I meant the physical locations they keep putting up. The branches. Nearing 5,000 in the U.S
Quite a footprint. They are buying locations in lots at key routes and intersections that never had banks before.
I've seen a lot of it. For some reason they want a big footprint on our streets.

 

[Brian4Liberty]

I meant the physical locations they keep putting up. The branches. Nearing 5,000 in the U.S
Quite a footprint. They are buying locations in lots at key routes and intersections that never had banks before.
I've seen a lot of it. For some reason they want a big footprint on our streets.

Prep work. The global WEF bank will need to have a lot of locations to transition and "serve" the peons.

 

[Madison320]

Jerome Turned On the Printer and Nobody Noticed

They haven't actually turned the printer on yet according to the fed's balance sheet, but it sure looks like they will.

Remember, the fed's balance sheet was under 1 trillion in 2008. It almost got to 9 trillion 2 years ago but they managed to shrink it down below 8 trillion. That means that in the long run prices should be 8 times what they were in 2008. And now they're going to fire up the printers again.

 

[Occam's Banana]

How America accidentally made a free-money machine for banks

https://twitter.com/TheEconomist/status/1750035593751302326

---

How America accidentally made a free-money machine for banks
The Federal Reserve should switch it off
https://www.economist.com/leaders/2...identally-made-a-free-money-machine-for-banks
[archive: https://archive.is/CK7jb]
{The Economist | 18 January 2024}

Higher interest rates have brought America’s bankers both ruin and riches. Less than a year ago rising rates caused Silicon Valley Bank (SVB) and then First Republic to fail, the largest bank collapses since 2008. Yet on January 12th JPMorgan Chase reported its seventh consecutive quarter of record net-interest income. One reason the crisis did not spread in 2023 is that the Federal Reserve contained it with a new—and generous—loan programme. Unfortunately, that has come at a cost that the Fed should have foreseen. Thanks to another turn in the interest-rate outlook, its intervention has mutated into a free-money machine for any bank brazen enough to exploit it.

The bank term funding programme (BTFP) offers banks loans secured against the face value of Treasury bonds. The idea was to stop wobbly banks having to sell Treasuries to raise cash if depositors fled. At SVB, a fire sale induced by a bank run crystallised losses, because higher rates had reduced the prices of long-term bonds far below their face value. But the BTFP lends the face value, rather than the market value, of the securities against which its loans are secured and, sure enough, its generosity succeeded in shoring up the system and stopping what could have become a severe crisis.

Today, however, the BTFP is itself causing trouble. The interest rate that banks must pay to borrow reflects, with a small premium, the one-year interest rate set in financial markets. That is in turn based on predictions of the average Fed policy rate over the next year. Because investors are betting the central bank will cut rates significantly, the cost of borrowing today is only 4.8%. Yet because those rate cuts have not yet happened, the Fed still pays banks 5.4% on their cash balances.

In other words, banks can draw loans just to make a spread of 0.6 percentage points, risk-free, at the expense of the central bank. Should the expected rate cuts take place, the banks need not suffer a negative interest margin, because they are free to repay the loans early, a valuable option the Fed, in effect, gave away for nothing. Borrowers’ identity will eventually be made public, so the only constraint on them is the risk to their reputations—but some may consider such shameless opportunism a virtue.

Naturally, the use of the BTFP has shot up. Since the start of November outstanding balances have risen from $109bn to $147bn. It is not certain this is all arbitrage, but over the same period bonds have risen in value, shrinking the problem the BTFP was designed to fix. This strongly suggests that the motive for the new borrowing is opportunism rather than necessity. And because the Fed is owned by taxpayers, the free money the banks are hoovering up comes at the taxpayers’ expense.

What should the Fed do? In the heat of the crisis it rashly promised to keep the BTFP open until March 2024. It has since strongly hinted that the facility will cease making new loans then. Shutting the BTFP early could undermine the credibility of the Fed’s promises. But it should immediately amend the interest rate on new loans, either to track its policy rate or to appropriately price the prepayment option. Either fix would remove the scope for arbitrage.

In the next crisis the Fed should design its interventions more carefully. A central-banking rule named after Walter Bagehot, a 19th-century editor of The Economist, prescribes that central banks should lend freely to solvent institutions that are threatened by bank runs, against good collateral and at a penalty rate of interest. By lending at generous rates, with a reverse-haircut, and to banks that might be insolvent on a mark-to-market basis, the Fed has arguably violated all three of Bagehot’s conditions. The crisis in 2023 was ugly, but so was the fix.

---

 

[Occam's Banana]

[...] And because the Fed is owned by taxpayers, [...]

 

[pmbug]

FX Hedgers wrote a decent article about the BTFP here:

https://www.fxhedgers.com/p/another-bank-bailout-and-no-one-noticed

Doesn't contain the inane spin that The Economist used.

 

[acptulsa]

"Accidentally"

 

[devil21]

Now the Fed is apparently shutting down the arbitrage and plans to end the BTFP (Buy The Fucking Paper?) program on March 11.

https://www.zerohedge.com/markets/fed-suddenly-kills-banks-free-money-bailout-fund-arbitrage-scheme


I'm thinking April will be an interesting month.

 

[Occam's Banana]

bump after merge

 

[pmbug]

BTFP ends today. Banks can't initiate any new loans under that program, but get to keep any existing loans.

NYCB looked to be on the brink but might have been rescued with a $1B package from Mnuchin & co.

Speculation abounds regarding the onset of the upcoming week, as Monday marks the conclusion of the U.S. central bank’s BTFP. Anticipations of renewed chaos in the banking sector are high, harking back to the U.S. banking crisis witnessed in March 2023. ...

https://news.bitcoin.com/speculatio...king-sectors-fate-as-feds-btfp-closure-looms/

In 2024, some banks will fail. In 2023, five banks failed. In 1989, over 500 banks failed. Since 1936, there were only 5 years without bank failures.
...

More:

https://wolfstreet.com/2024/03/10/t...and-the-dropping-bank-count/?source=pmbug.com