Fed Bank Term Funding Program

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glennds
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Fed Bank Term Funding Program

Post by glennds » Thu Mar 16, 2023 11:37 am

Some analyst commentary on the potential scale of the Fed's new Bank Term Funding Program

New Fed Bank Backstop Has Scope to Inject as Much as $2 Trillion
Facility unlikely to be used by largest banks: JPM strategists
Wrightson ICAP sees window, new facility use rising by $100b
ByMasaki Kondo and Alex Harris
March 15, 2023 at 8:45 PM MSTUpdated onMarch 16, 2023 at 6:51 AM MST

Market observers are on alert to find out just how much extra funding the Federal Reserve’s new bank backstop program will ultimately add into the system, with analysts at JPMorgan Chase & Co. positing that it could inject anywhere up to $2 trillion in liquidity.....


Interesting chart embedded in the article that shows the inverse correlation between reserves and interest rates.
Look at how reserves jumped in 2020 and 2021, and where they were in 2019, like half of what they are now. Yet we weren't hearing a peep about bank reserves back then.
Question - did the same thing happen in 1982 and did the Volcker interest rate policy trigger bank failures?
Does this mean there is a ceiling for interest rates above which the banking system collapses?
It will be interesting to watch the volume on the BTFP loans which the article says will be reported in the weekly Fed balance sheet report.

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Full article: https://www.bloomberg.com/news/articles ... ify%20wall
boglerdude
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Re: Fed Bank Term Funding Program

Post by boglerdude » Thu Mar 16, 2023 11:14 pm

Where are reserves going, are banks not parking them at the Fed for risk free 4.65%?

https://old.reddit.com/r/finance/commen ... _trillion/
glennds
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Re: Fed Bank Term Funding Program

Post by glennds » Fri Mar 17, 2023 1:05 pm

boglerdude wrote:
Thu Mar 16, 2023 11:14 pm
Where are reserves going, are banks not parking them at the Fed for risk free 4.65%?

https://old.reddit.com/r/finance/commen ... _trillion/
It's 4.65 today. A year ago it was .15.
Presumably some of these banks thought they could do better by going into bonds and MBS securities with the tons of money that flowed in during the Covid pandemic.
A feature of super low interest rates is the push into riskier assets with interest rate exposure that apparently even banks did not know better than to do.
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