IS THE #FED (PERHAPS WILLINGLY) STARTING A BANKING CRISIS TODAY? - JustDario: In about 24 hours, the “Bank Term Funding Programme”, the infamous #BTFP, will be history. There should not have been any surprise about this if it wasn’t for the fact the banking situation today is much worse than it was one year ago when the #BTFP was launched. How dire...
How dire the banking situation was became obvious months ago, but the #FED at that time warned they would not have extended the #BTFP and banks should hurry to strengthen their balance sheets and put aside enough reserves to deal with their losses. Of course, banks didn’t do anything of this either in Q3-23 or in Q4-23 because they knew mama #FED would never have the guts to risk a banking crisis starting, and potentially spreading like wildfire, across the world 2008 #GFC style. Personally speaking, I agreed with this stance which is why it was shocking to see the #FED (out of the blue) putting out a press release on the 24th of January to make it clear to everyone, including myself, that the #BTFP will end on the day it was always supposed to do so.
Press Release: “Federal Reserve Board announces the Bank Term Funding Program (BTFP) will cease making new loans as scheduled on March 11”
(January 24, 2024
Federal Reserve Board announces the Bank Term Funding Program (BTFP) will cease making new loans as scheduled on March 11
For release at 7:00 p.m. EST
The Federal Reserve Board on Wednesday announced that the Bank Term Funding Program (BTFP) will cease making new loans as scheduled on March 11. The program will continue to make loans until that time and is available as an additional source of liquidity for eligible institutions.
During a period of stress last spring, the Bank Term Funding Program helped assure the stability of the banking system and provide support for the economy. After March 11, banks and other depository institutions will continue to have ready access to the discount window to meet liquidity needs.
As the program ends, the interest rate applicable to new BTFP loans has been adjusted such that the rate on new loans extended from now through program expiration will be no lower than the interest rate on reserve balances in effect on the day the loan is made. This rate adjustment ensures that the BTFP continues to support the goals of the program in the current interest rate environment. This change is effective immediately. All other terms of the program are unchanged.
The BTFP was established under Section 13(3) of the Federal Reserve Act, with approval of the Treasury Secretary.)
So in 24 hours:
- Banks will not be able to use the #BTFP anymore
- The Discount Window isn’t a viable alternative to replace the #BTFP
- Since the banking crisis last year, not a single bank raised capital, but their balance sheet losses even increased.
- Banks that borrowed from the #BTFP will need to come up with $79bn to repay the #FED loans by the 4th of April.
As you can see from this table I prepared, the biggest amount of #BTFP loans are expected to be repaid in the next 4 weeks:
- $11.9bn this week
- $41.7bn next week
- $10.7bn in 3 weeks
- $14.6bn in 4 weeks
If it was hard to find $1bn for $NYCB to the point there wasn’t a better alternative than (locust) hedge funds, it doesn’t take a financial wizard to figure out the chances $79bn can be found in 4 weeks are realistically low. Why can’t banks just walk away from the #BTFP? Doesn’t the #FED have collateral against the money they borrowed if they do so?
Banks cannot simply walk away and not repay money borrowed from the #BTFP because that was made in the form of a “loan” and defaulting against it will trigger all cross-default clauses in every other borrowing facility available to them.
Yes, it’s an incredible mess without any visible escape route. This is why I am arguing the #FED is potentially starting a banking crisis today and, honestly speaking, I don’t think people at the #FED aren’t intelligent enough to see it coming which makes me wonder if perhaps they are willingly starting a banking crisis this time.
#FDIC #Data Contradicts Fed Chair Powell: Shows #RealEstate Problems Have Skyrocketed at Largest U.S. #Banks, Not the Smaller Regionals https://t.co/yukaVXvy64 pic.twitter.com/5OzNsSY9MI
— Guillermo Ruiz Zapatero (@ruiz_zapatero) March 11, 2024
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