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All banks are suffering, buy some are suffering more than others. It's also unclear how the Fed's actions are going to impact the situation going forward. Here

by rcme 4y ago

All banks are suffering, buy some are suffering more than others. It's also unclear how the Fed's actions are going to impact the situation going forward. Here are my unanswered questions: 1. What's going to happen to risk management at banks now that the government has shown themselves willing to backstop all deposits. Is there really any reason to spend money hedging risk? 2. What's going to happen to the bond market? Bonds are generally understood to change in price in a way that keeps yield equal to currently available fixed-income securities. However, with the Fed's new BTFP, the value of bonds is always par, apparently. 3. What are the banks going to do with their new liquidity? The Fed is essentially giving banks a fully collateralized $1 in exchange for $0.80. That's a lot of free money.

omginternets 4y ago
>Is there really any reason to spend money hedging risk? Shareholder money is still on the line?
qqqwerty 4y ago
If BTFP can only be used by banks with hold to market bonds purchased before March 12th, then wouldn't the impact on bond prices be negligible? I suppose we could hypothesize what the bond market would like in the absence of BTFP and the much higher likely hood of contagion. Feels like yields would drop on the expectation that the Fed would be forced to lower rates due the crashing economy. So I guess one could argue that BTFP might cause yields to go down a little bit, but probably a lot less than they would have otherwise. As to question 3, BTFP feels like a small dash of QE after pushing QT a little too hard and too fast. Banks will probably just put that extra cash into short term treasuries to shore up their balance sheet to protect against declining deposits. So I guess we should expect that extra cash to push short term yields down. Short term yields have already dropped a bit though, so maybe that is already priced in.
- rcme 4y ago
  The bond market is massive. A large majority of bonds were purchased before March 12th. As for the QE/QT performed by the Fed. The Fed's balance sheet has already increased by 300 billion, which undoes like half a year of QT. JPMC estimates a total of 2T in liquidity. Not only will that undo all QT, it will bring the Fed balance sheet to new all time highs.
csomar 4y ago
It's just petty corruption. The FED has raised rates (many people will lose from that). Some people don't want to lose from that. The FED decided to not raise rates (ie: holding your low-rate bond to maturity is basically that) for some people. This "some people" are denominated "systemically important"; in other countries they are called "friends of friends", or "oligarchs". This is the closest the West can be to the East. We finally had the "rapprochement"!

by rcme 4y ago

omginternets 4y ago

>Is there really any reason to spend money hedging risk? Shareholder money is still on the line?

qqqwerty 4y ago

If BTFP can only be used by banks with hold to market bonds purchased before March 12th, then wouldn't the impact on bond prices be negligible? I suppose we could hypothesize what the bond market would like in the absence of BTFP and the much higher likely hood of contagion. Feels like yields would drop on the expectation that the Fed would be forced to lower rates due the crashing economy. So I guess one could argue that BTFP might cause yields to go down a little bit, but probably a lot less than they would have otherwise. As to question 3, BTFP feels like a small dash of QE after pushing QT a little too hard and too fast. Banks will probably just put that extra cash into short term treasuries to shore up their balance sheet to protect against declining deposits. So I guess we should expect that extra cash to push short term yields down. Short term yields have already dropped a bit though, so maybe that is already priced in.

rcme 4y ago
The bond market is massive. A large majority of bonds were purchased before March 12th. As for the QE/QT performed by the Fed. The Fed's balance sheet has already increased by 300 billion, which undoes like half a year of QT. JPMC estimates a total of 2T in liquidity. Not only will that undo all QT, it will bring the Fed balance sheet to new all time highs.

csomar 4y ago

It's just petty corruption. The FED has raised rates (many people will lose from that). Some people don't want to lose from that. The FED decided to not raise rates (ie: holding your low-rate bond to maturity is basically that) for some people. This "some people" are denominated "systemically important"; in other countries they are called "friends of friends", or "oligarchs". This is the closest the West can be to the East. We finally had the "rapprochement"!