No way in hell keep dreaming… well maybe if stocks are down 35-40%… and the politics are so sour who knows they may actually default on the “debt ceiling!” this time…
As stimulus check petition hits 2.5 million signatures, Americans ask: ‘Will there be a fourth payment?’ https://t.co/fT0nbvcuu2 #StockMarket pic.twitter.com/2WF79eMR1M
— Stocks News Feed (@feed_stocks) July 7, 2021
8 comments:
All US banks are bound by a Tier 1 leverage ratio of 4%. If Large Banks/GSIBs are still accepting MM funds (which they have ceased doing so) those funds count in the computation of the capital buffer required. That is why they booted out marginal MM funds. Why? A bank would not raise capital just so they can hold more reserves yielding 0.1%.
Assuming that banks pay zero interest to MM funds (to be at par with the O/N RRP), costs for a bank to accept MM funds are not simply interest expenses (which are virtually 0% now anyway), but also regulatory costs. Also, the banks prefer to fill the capacity of the balance sheets with assets with favorable Liquidity Coverage Ratio (LCR) -- a complementary regulation to the Supplementary Leverage Ratio (SLR).
So, yes, these funds would count on both the SLR and the LCR -- that is why the GSIBs basically booted out all MM funds from their balance sheets.
The actual calculation of the amount of Bank Reserves expunged by the O/N RRP facility. The RRP is subtractive of BRs one-to-one. So far, Bank Reserves have declined by $561 as of today (June 3) -- True, reserves are coming and going -- its just that with the RRP, there are more of reserves going. See that illustrated here.
https://refini.tv/3cfnmxr
1. When doing QE, the Fed does not deal with the market directly; its business is intermediated by designated Primary Dealers (PDs). Strangely enough, domestic/US PDs (which are not banks) do not have Fed accounts, but banks have such account at the Fed. Non-banks do not have Fed accounts as well. Even more strange, some foreign-owned PDs have Fed account via the parent foreign bank operating in the US. US PDs normally bank with so-called custodian banks.
2. Intermediation is conducted by the PDs with Banks (but are non-PDs) and with Non-Banks/Non-PDs. A Primary Dealer borrows money (say $100) from a money market fund via the repo market to make the purchase of securities worth $100, say, from a non-Bank. The Treasury purchased is immediately pledged as collateral for the money market fund’s repo loan. The Primary Dealer will repay the repo loan using the proceeds it receives from selling the Treasury to the Fed.
3. At the end of the process, there are $100 more reserves in the banking system. That new $100 of Bank Reserve ends up at the Fed's account of the Non-Bank's bank, which in turn creates a bank deposit for the Non-Bank seller. The Fed keeps the securities, and the non-Bank seller has its bank deposits -- it has exchanged securities for bank deposits. There are several permutations of this process, but this is the most common.
4. Note that QE is merely an asset-swap, converting securities into Bank Reserves (or bank deposits), on-to-one. From the Fed's point of view, the Fed has acquired assets (the securities bought) but also incurred liabilities (Bank Reserves created). Due to the asset-liability composition of such asset swap, THERE IS NO NEW SET OF MONEY/DOLLARS CREATED. In the Fed's ledger, one dollar of asset expunges/countervails one dollar of liability. Think of an asset having a (+) sign and a liability having a (-) sign. Mathematically, there's net of Zero "real money, real dollar" creation.
The increase in money supply that we have recently seen stems from the creation of bank deposits, which were created by the QE process (as just explained above) and by bank lending to non-banks (public). The Fed does go out and goes set to create the money supply -- in fact, the Fed has little to do with M2 and M1 -- these aggregates are created by the market. The only Money Aggregate that the Fed has control on is the Monetary Base (MB) which recently is close to 100 per cent composed of various QE proceeds.
Let me show you that process which creates M2 money Supply, which is on the verge of collapse.
https://refini.tv/3if3HSd
For the TGA, the process is similar. Just substitute the US Treasury as another "customer" at the end of the process which starts with the Primary Dealers. There are huge dissimilarities, of course, and the analogies are not perfect. In fact, we are all boggled by the humongous amounts of debt issuance by the Treasury, but you know what? After the Fed is done "monetizing" that debt issued, which it turns into Bank Reserves (in a similar manner previously described), those Bank Reserves get "impounded" as well. The real money creation is done by banks lending, but nowadays, they are not doing it.
The reality is that the "net money" that gets created when the Treasury sells debt, is the delta (difference) between what the total debt that the Fed has issued, and the Total Amount of Fed SOMA holdings (balance sheet).
I will show you that:
https://refini.tv/3idW2DN
You will note that the Fed has been "monetizing" less and less of the Treasury's debt issuance, and thereby the Bank Reserves change rates are falling hard. And I tell you that is not good because, as I have shown in the article, "flows" in Bank Reserves is what sustains the risk asset markets. Sharply falling change rate of BRs does not bode well for equities,
https://refini.tv/3uP5pfF
Updates from seeking alpha
https://seekingalpha.com/author/robert-p-balan/comments
And
https://seekingalpha.com/user/7143701/comments
“ There are huge dissimilarities, of course, and the analogies are not perfect.”
No kidding that’s why you don’t use figurative language you use applied mathematics…
Just compute the quantitative effect of any policy adjustment on the various regulatory functions … if the Fed policy adds reserve assets to banks then just recompute the regulatory results after the Fed operation… if the Fed reserve addition puts the banks in regulatory violation then you get a crash… rinse and repeat every 10 years or so that these morons always do it…
Mike should create a new course.
Understanding the bank release reports. What they called in the US H8 and H4 ??
Good idea!
Yes h.8 and H.4.1…
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