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It's a loan that will be paid back within 90 days. Most for the money won't enter circulation and is only a liquidity backstop for banks. The rest of the money
by HDThoreaun 4y ago
It's a loan that will be paid back within 90 days. Most for the money won't enter circulation and is only a liquidity backstop for banks. The rest of the money will be gone in a few months. This is extremely different from traditional QE which involves buying long dated bonds.
- almog 4y agoTrue, I'm just not sure what's the plan after these 90 days have passed other than more loans, any idea? If the Fed suddenly cut rate aggressively that would be one way for banks to restore liquidity but I cannot see that happening while inflation still running hot.
- HDThoreaun 4y agoI think the plan is the banks use these 90 days to sell their less liquid assets that aren't as effected by the interest rate increase. In the end, even being insolvent isn't actually a death knell for banks as long as depositors believe the money will be paid back, which is why the government is putting so much effort into reassuring that 0 deposits will be lost. Also half the money was literally just to pay back SVB and signature deposits while they unwind their book. Once everything is sold the other FDIC member banks will have to pony up any extra cash to pay the loans back.
- _gmax0 4y agoMan, these are the times I wish I had access to Bloomberg Terminal. What bond-selection strategies do banks usually take in situations like this? Riskiest bonds off of their sheets first?
- lazide 4y agoThe reason they need this money is because of drawdowns in deposits - money now entering the economy.