Friday, September 20, 2019

Nathan Tankus on the Fed and bank liquidity crisis

Thread by @NathanTankus: "There was obviously a ton of discussion of liquidity this week after repo rates rose a lot and the Fed conducted thcale repurchase agreements since the Great Financial Crisis. To explain what’s happening, we need to properly […]"

6 comments:

Matt Franko said...

I dont think the Basel thing is binding on US banking system.... why would Congress ratify Basel and kill the golden goose? Congress will never give that up...

Doesnt seem like there is any INTRAday liquidity issues as the UST auctions are settling... $bazillions in excess reserves...

This is a howl:

"Since the demand for settlement balances is more volatile in a world that hoards intraday liquidity, the best way to do this is “cap” repo rates by having the Fed set a max interest rate at which it will enter repo agreements."

Its like he's saying "the natural rate of interest is zero! .... if the government passes a law that makes it so!" Oh OK sure!

MMT has to explain why the FFR went to 10% when all of their beloved "literature!" that they always say "nobody reads!" says that should not have happened as "the natural rate of interest is zero!" yada yada... well I read "the literature!" and it didnt happen... cue the crickets...

Then here:

"The reason this matters is that this type of liquidity requirement puts pressure on banks to borrow **end of day** and thus doesn’t prioritize banks having intraday liquidity. Many interpreted this as a bad thing (and indeed it did cause problems in the GFC). HOWEVER 6/N
The advantage of this system is it didn’t lean on hoarding liquidity. This system only ran into problems because of solvency concerns about other financial institutions."

This is where I differ with these people who seem either ignorant of or incapable of abstracting the effect of leverage regulations...

Its not that they "wouldn't" lend due to 'solvency concerns' it was that they couldn't lend due to leverage concerns..

Could be the same thing happening now... which could be why the repo system somewhat failed this week...

He could probably just run the numbers from the H.8 and see what the system reserve ratio comes out at... there are $bazillions of excess reserves in US system... what is the system requirement for the US? I have a hard time thinking there is some sort of shortage due to the US RRR regulation or even the Basel numbers... ie 'liquidity requirements' ... maybe at a few institutions? GSEs not engaging in repo as they are govt owned and they still have a sig amount of system reserves?

Question: Can a bank designating their possessed Reserves as Tier1 or Tier1 quality (for SLR and/or CCAR compliance) then repo those same said reserves? iow can the bank otherwise encumber any Tier1 (not available for sale) asset? If "no" then again this is probably a leverage issue similar to GFC.. not a 'liquidity' issue...

Going forward it appears the Fed has hit the panic button and is just going to "pump in money!" to (to them) increase the "money supply!" which (as Monetarists... again MMT having ZERO effect on actual policy get out of your dream land...) they think will help keep the observed FFR lower as they are increasing (to them) the "money supply!"... pretty straight forward QTM playbook again MMT having ZERO influence... ZEEEEEERRRRROOOOOOOO....

They are adding another 90B in 72 hours next week I dont think that is a good idea to say the least its just going to depress the system leverage ratio even more than their 75b did this week... generally bearish for risk assets... we'll see..





Matt Franko said...

H.8

https://www.federalreserve.gov/releases/h8/current/


H.4.1

https://www.federalreserve.gov/releases/h41/current/

System RRR (with 75B they added this week) = Reserves/(Deposits) = 1.4T/13T = 10.76%

this says:

https://www.thebalance.com/reserve-requirement-3305883

"Reserve Requirement Ratio
On January 17, 2019, the Fed updated its reserve requirement table. It required that all banks with more than $124.2 million on deposit maintain a reserve of 10 percent of deposits."

OK so if it went down to 1.3T on Monday on the big tax payments (which it did) then it was 1.3T Reserves/13T Deposits so right at the 10% so looks like they bounced it ..

f-ing idiots...

so they added the 75b as they made their own system bounce... now adding the 90 next week... and STILL going to suppress leverage ratios...

What a bunch of idiots... right hand doesnt even know what the left hand is doing..

Now their abrupt cessation of the (to them) the "QT" in August makes more sense.. they were ready to make the system deficient of their own reserve requirement if they kept reducing reserves... OMG....

And then think of all the disgraced lefty loser morons thinking that these people are the big clever "neo-liberal conspiracy!" big bad "banksters!" getting over on everybody else!

Who is more stupid????? That's a tough one!!!

Matt Franko said...

My statement above:

"there are $bazillions of excess reserves in US system"

appears incorrect if this is true:

"On January 17, 2019, the Fed updated its reserve requirement table. It required that all banks with more than $124.2 million on deposit maintain a reserve of 10 percent of deposits."

Reserves at Depositories is about 1.4T and Deposits are about 1.3T so there arent many if any excess any more since January 17th...

Why is there any talk about the Fed further reducing Reserves at all now???

They reduce them any more and they are going to make all their own Depositories in violation of their own reserve regulation...

I just dont know how you lefties continue to think these people are smart...

Matt Franko said...

Ok.....now I see what happened they reduced reserves right to the 10% level at $1.3T maybe it went below and of course with the system bouncing at threshold some institutions probably went under the 10% so they went out to borrow reserves but there werent any excess to borrow because the Fed/Treasury reduced the reserves down below their own 10% requirement of Deposits...

Nice!!!!

OMG and again you guys think these people are smart!!!! LOL!!! Give it up!!!


Matt Franko said...

typo Reserves from H.4.1 is 1.4T and Deposits from H.8 is 13T not 1.3T...

they are right at the 10% limit for system... need a bit more permanent reserves... they over shot on the (to them) "QT"... should have left reserves at Depositories at about 1.5T if they really raised the resrve ratio to 10% on Jan 17th...

This is like the GFC only this time for Reserves...

Back at GFC they made the Depositories violate their own regulatory Leverage Ratio now this week they made them violate their own regualtory Reserve Ratio...

The main problem is that these people are stupid...

Greg said...

The neoliberal conspiracy is not about smart it’s about powerful and ideologically rigid.