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Depending on how you regard the Federal Reserve, it's already happening. The Fed has been making massive loans to banks that are unable to get overnight loans f
by SilasX 7y ago
Depending on how you regard the Federal Reserve, it's already happening. The Fed has been making massive loans to banks that are unable to get overnight loans from other banks based on their portfolios. [1]
The amount and duration reporting has been. Originally it was $53 billion planned for a few weeks [2], and now it's over $128 billion [3], lasting into next year.
[1] https://news.ycombinator.com/item?id=21004068 https://news.ycombinator.com/item?id=21004068
[2] https://www.reuters.com/article/us-usa-fed-repo/n-y-fed-awards-54-85-billion-in-overnight-repos-idUSKBN1WG3WM https://www.reuters.com/article/us-usa-fed-repo/n-y-fed-awar...
[3] https://markets.businessinsider.com/news/stocks/fed-repo-injects-billions-into-market-first-time-in-decade-2019-9-1028534289 https://markets.businessinsider.com/news/stocks/fed-repo-inj...
- toast0 7y agoIf nobody is willing/able to lend dollars overnight secured by borrowers' treasury notes as collateral, and the Fed steps in to lend, the problem is either there's not enough dollars around to lend or people don't trust the collateral. Since treasury notes are trading at normal interest rates in the overall market, it seems pretty clear it's a liquidity issue. The potential lenders in that market don't have enough dollars to lend (in part due to post-2008 regulations and post-2008 behavioral changes by those lenders). If it were easy to become a lender in the overnight market, you would see people swooping in to make nearly risk free loans for 8% (apr) overnight. The swooping would rather rapidly lower the interest rates back to near normal. The Fed has authority and ability to swoop in, and a desire to keep the interests low, so there you go.