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If a lending facility, only available to banks, at par for assets that are under par is not a bailout… What would you call it?

lmm 4y ago
It's not allowing the bank to continue to operate under its current owners. Equity holders are likely getting zeroed and debt holders are likely taking a haircut. It's deposit insurance, not a bailout (at least in the sense of how the term is normally used), and where the money is coming from is irrelevant to that.
- pishpash 4y ago
  Those are not the terms of the BTFP. Nowhere does it say that to access this facility you must go under FDIC receivership and wipe out shareholders and bondholders.
ejdyksen 4y ago
It’s not available to banks, only to used-to-be-banks.
- simple-thoughts 4y ago
  False. Check the linked press release in my parent comment - the BTFP is available to all banks and allows them to use their under par assets as collateral for loans at par from the Federal Reserve. “ Borrower Eligibility: Any U.S. federally insured depository institution (including a bank, savings association, or credit union) or U.S. branch or agency of a foreign bank that is eligible for primary credit (see 12 CFR 201.4(a)) is eligible to borrow under the Program. “
  - ejdyksen 4y ago
    Fair. Thought you were talking about making SVB depositors whole. I’d call the BTFP a mechanism to stabilize the banking system in the US, given rising interest rates. I guess I don’t care as much about the semantics, though.
    - pishpash 4y ago
      It wipes out losses accrued up to March 12, 2023 on eligible securities, for one year. It's taxpayer funded. Terms are super generous: only a 10bp premium. It's at least a bailout for one year. It may or may not get extended.
      - slv77 4y ago
        It also works against the Federal Reserves stated policy of shrinking their balance sheet due to inflation.
        pishpash 4y ago
        I do think it's somewhat clever. It basically lets the private banking sector control the pace of QT. If liquidity dries up somewhere in the system it does a one-year targeted QE.
  - astrange 4y ago
    I'd say it's bailout-y to value collateral above market value, but isn't totally free money and we haven't seen all the terms for it. At least the Fed is safer holding long term bonds than anyone else.
twblalock 4y ago
> If a lending facility, only available to banks, at par for assets that are under par is not a bailout… > What would you call it? Obviously I'd call it a loan.

lmm 4y ago

It's not allowing the bank to continue to operate under its current owners. Equity holders are likely getting zeroed and debt holders are likely taking a haircut. It's deposit insurance, not a bailout (at least in the sense of how the term is normally used), and where the money is coming from is irrelevant to that.

pishpash 4y ago
Those are not the terms of the BTFP. Nowhere does it say that to access this facility you must go under FDIC receivership and wipe out shareholders and bondholders.

ejdyksen 4y ago

It’s not available to banks, only to used-to-be-banks.

simple-thoughts 4y ago
False. Check the linked press release in my parent comment - the BTFP is available to all banks and allows them to use their under par assets as collateral for loans at par from the Federal Reserve. “ Borrower Eligibility: Any U.S. federally insured depository institution (including a bank, savings association, or credit union) or U.S. branch or agency of a foreign bank that is eligible for primary credit (see 12 CFR 201.4(a)) is eligible to borrow under the Program. “
- ejdyksen 4y ago
  Fair. Thought you were talking about making SVB depositors whole. I’d call the BTFP a mechanism to stabilize the banking system in the US, given rising interest rates. I guess I don’t care as much about the semantics, though.
  - pishpash 4y ago
    It wipes out losses accrued up to March 12, 2023 on eligible securities, for one year. It's taxpayer funded. Terms are super generous: only a 10bp premium. It's at least a bailout for one year. It may or may not get extended.
    - slv77 4y ago
      It also works against the Federal Reserves stated policy of shrinking their balance sheet due to inflation.
      - pishpash 4y ago
        I do think it's somewhat clever. It basically lets the private banking sector control the pace of QT. If liquidity dries up somewhere in the system it does a one-year targeted QE.
- astrange 4y ago
  I'd say it's bailout-y to value collateral above market value, but isn't totally free money and we haven't seen all the terms for it. At least the Fed is safer holding long term bonds than anyone else.

twblalock 4y ago

> If a lending facility, only available to banks, at par for assets that are under par is not a bailout… > What would you call it? Obviously I'd call it a loan.