Joseph, where do you unearth all of these fascinating factoids. You do one heck of a research paper everytime you write one of these. This was very informative and thanks for your hard work.
Thank you Robert for the kind words! Most of the time I just try to collect data and add the research on top of that, but with these recent SVB posts I have found myself with more information than I know what to do with. I don't think I'm at risk of running out of angles to cover this story from yet!
I’m curious- why wouldn’t there be losses? There is no cash or they wouldn’t need the funds. Selling their short term debt will be (probably) loss free, but moving the long term debt at lower interest rates will bring significant losses when not hidden as “held to maturity”. Where else can they pay back the loans from?
Only way for the Fed to lose money via the BTFP is for counterparties banks to go under, the most likely way for counterparties to go under is to have runs that force them to realize unrealized losses, and BTFP lending itself should help prevent more runs. Higher rates themselves are usually a boon to banks because the margins between what they make on loans and what they get on deposits increase, and most banks don't have the duration exposure of SVB, so BTFP should just buy them enough time to make up for a lot of the unrealized losses.
But doesn’t the discount window have a 15-30-90 day due date? How are the banks with duration mismatch issues going to close those issues within that time?
The breakdown of regional Fed lending is great. Where does one access the data on the regional Feds' Change in Loans, Securities, and Repos Since pre-SVB collapse? Is that on the H.4.1?
Your coverage of these events has been some of the clearest and most helpful. Great work!
Thank you!
nice work joey
Thank you Kyla!
Enjoyed how you unpacked it so clearly!
Thank you!
Excellent article
Thanks Marlon!
Joseph, where do you unearth all of these fascinating factoids. You do one heck of a research paper everytime you write one of these. This was very informative and thanks for your hard work.
Thank you Robert for the kind words! Most of the time I just try to collect data and add the research on top of that, but with these recent SVB posts I have found myself with more information than I know what to do with. I don't think I'm at risk of running out of angles to cover this story from yet!
Excellent reporting on this J dog. Sharing a bunch of your articles tomorrow morning.
Thank you!! I really appreciate it <3
Wow, I’m bothered that the messaging has been that the Fed will only front $25 billion, but under the hood they put up $300 billion.
Why bother announcing the $25 billion if it’s not really needed behind the discount window lending?
The $25B figure is only the amount from the Treasury to backstop the BTFP in case of possible losses (which I would not expect to happen at all)
I’m curious- why wouldn’t there be losses? There is no cash or they wouldn’t need the funds. Selling their short term debt will be (probably) loss free, but moving the long term debt at lower interest rates will bring significant losses when not hidden as “held to maturity”. Where else can they pay back the loans from?
Only way for the Fed to lose money via the BTFP is for counterparties banks to go under, the most likely way for counterparties to go under is to have runs that force them to realize unrealized losses, and BTFP lending itself should help prevent more runs. Higher rates themselves are usually a boon to banks because the margins between what they make on loans and what they get on deposits increase, and most banks don't have the duration exposure of SVB, so BTFP should just buy them enough time to make up for a lot of the unrealized losses.
But doesn’t the discount window have a 15-30-90 day due date? How are the banks with duration mismatch issues going to close those issues within that time?
BTFP has terms of up to 1yr (and theoretically some banks could borrow from the BTFP for two years if they borrow in two subsequent 1 year increments)
True- but wasn’t that only the $25 billion not every discount window loan?
Excellent read. Thank you JP.
I would say the US federal reserve is not going to stop hiking rates anytime soon. I hope all are prepared for what’s coming. This is my take.
https://finiche.substack.com/p/risk-management-shines-as-markets
Will the Fed merely pause, or will they have to accept today's inflation as the new normal?
Thank you for your coverage and insights!
The breakdown of regional Fed lending is great. Where does one access the data on the regional Feds' Change in Loans, Securities, and Repos Since pre-SVB collapse? Is that on the H.4.1?
Hey Nick! Yes, it's on H.4.1, table 6!
https://www.federalreserve.gov/releases/h41/20230323/