possible financial market alert: New York Fed spends $53 billion to rescue the overnight lending market

And to to the guy who said "let them fail" keep in mind if the bank that has your money fails, then you won't have access to it.

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Great point! But it's even bigger than that!

If banks aren't signing "letters of credit" then cargo ships wont get unloaded...then no items in the stores.

You desperately needed brake pads that come from hong kong? Tough fuckin' noogies!

NO DRIVING FOR YOU!

Not too educated on the Federal Reserve, eh? It's ok, there's a lot of ignorant people out there.

The NY Fed has nothing to do with red/blue states. The NY Fed conducts the Federal Reserve System's open market operations. It's the real mothership of the FRS while the DC office is mostly window dressing.

another 75 BILLION this morning,,

well, prepare as you are able.

5 stars

Pine it

sure. And thanks for the pin, GLP!!!

well said!!

Investors take for granted that the Federal Reserve controls interest rates. Rarely do they have to think about how.

But a surprisingly lively couple of days in short-term money markets has meant that the “how” became nearly as important as the “why.”

The stress started on Monday in the market for repurchase agreements, or repos. The repo market channels more than $1 trillion in funds through Wall Street every day, usually without fanfare. That money is used to pay for the day-to-day operations of big banks and hedge funds.

Then the Fed’s key interest rate, known as the federal funds rate, hit 2.3 percent on Tuesday. That’s above the central bank’s target, and the rise reflected unexpected strains.
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The central bank on Wednesday lowered interest rates by a quarter percentage point as part of its effort to ensure that the economic expansion continues. It also announced steps to make sure short-term interest rates do what it wants, saying that it would cut what it pays banks for their excess reserves.

And on Thursday, for the third time this week, the Fed pumped billions into the financial markets to push rates lower.

In the past, when the repo markets managed to make headlines, it was in exceptional episodes of market stress — for instance, in the early days of the financial crisis.


[link to www.nytimes.com (secure)]

Bank reserves are normally obscure, even to bankers and professional investors. But this week they have hit the news when a shortage of them caused a key measure of borrowing costs—known as the overnight repo rate—to spike. That is a worry because typically these more wonky areas of finance only become interesting when something is going wrong.

The overnight repo rate, which is what banks and other financial players charge each other to lend cash in exchange for supersafe bonds, should be close to 2%, but it shot up almost as high as 10% on Tuesday. One of the underlying causes of this is a scarcity of reserves compared with the amount of Treasury bonds in the market. That has made banks less willing to lend to each other even in exchange for safe government bonds.

To settle markets down, the Federal Reserve Bank of New York has dipped into this market, conducting three auctions this week where banks could swap Treasurys (or bonds from institutions like Fannie Mae ) for new reserves. It conducted a third auction on Thursday morning and offered $75 billion in repos.

Here is a simplified rundown of what reserves are and how they have come to matter.

What are reserves?

Not many people realize this, but there are two basic types of money in the world. There is central bank money, which is known as reserves, and there is money that the rest of us use.

Central bank money can only be used by banks, governments and some government-linked institutions. They have this money in accounts at the central bank, where it is called “reserves.” The money that the rest of us use is private money that is created by ordinary banks. There is also some special central bank money that everyone can use: The notes and coins in our wallets.

....reserves have been shrinking because of the reversal of QE, increased government borrowing in the Treasury market and a recent wave of tax payments, among other things.

One key cause of the crunch in overnight lending markets is that there are more Treasurys around than banks want to own, but some banks are still being forced to buy them. These are the so-called primary dealers who buy Treasurys from the government and then sell them to investors.

If banks don’t want to spend their own reserves to buy Treasury bonds, they have to borrow those reserves from elsewhere. They can do that directly in specialist bank-only markets, or they can try to borrow private money in overnight lending markets, where rates spiked this week.

That is why the short-term fix has been for the Federal Reserve Bank of New York to offer to take some of those Treasurys in exchange for new reserves. The longer-term solution could be a more permanent arrangement where the Fed conducts regular auctions—unless it turns out that the problem isn’t just with banks, but that there is a real need for funding coming from somewhere else in the system that hasn’t yet been identified.

[link to www.wsj.com (secure)]

Last Edited by Digital mix guy Spock on 09/19/2019 11:37 PM

Chaos in short-term funding markets this week led the Federal Reserve to step in with a series of overnight rescue operations to help keep credit flowing through the financial system.

Here are five things to know about gyrations in overnight lending rates, which several times in the past week spiked to almost 10%. The strain forced the Fed to open three daily borrowing facilities, so far, to add juice to funding markets.

Thursday morning’s $75 billion operation was the latest effort, bringing short-term borrowing rates on less risky collateral to about 1.8% to 1.95% in afternoon trade, according to Russ Certo, Brean Capital’s head of rates products.

That put borrowing levels within the desired range set forth by the Fed’s rate-setting committee, which voted Wednesday to cut the federal-funds rate to a 1.75% to 2% range and trim 5 basis points off the rate it pays banks to excess reserves at the central bank, or IOER, to 1.80%.
Who is bearing the brunt of higher repo rates?

Broker-dealers, hedge funds and other institutional investors who rely on leverage to run their operations are seeing the biggest impact of higher overnight repo rates, said Stephen Stanley, chief economist at Amherst Pierpont, which in May became one of 24 primary dealers in the U.S. Treasury debt market.

“The repo market is the market where people running leveraged positions borrow,” Stanley told MarketWatch in an interview. “Obviously, that doesn’t apply to 401(k) funds or mutual funds, where you are investing real money without leverage.”

[link to www.marketwatch.com (secure)]

OK, now I'm reading it's gone from 8% to 10%.

A large bank MUST be on the edge of collapse...and who ever has exposure to that bank is in serious trouble...and nobody knows which banks have exposure to the big bank that's on the edge...so nobody wants to lend to anybody.

That's the only thing that makes sense.

I feel like Wile E. Coyote with my tiny umbrella up.

Last Edited by Mental Case on 09/19/2019 11:43 PM

yup. let's keep on top of this!! thanks for your comments here!

Thread: the most important issue in the world??!!! will the dollar remain as the world's reserve currency??!!!

Any guesses as to which?

Softbank
Deutschebank
HSBC
Banco Santander
An American bank?

We usually find out on a friday evening, so the FDIC can have the matter settled by monday morning market open.

I'm not saying it will be tomorrow...but it's almost always a friday evening that they march into the banks & shut it down.

My guess (and it's only a guess) is DB (Deutschebank).

The problem is what banks have exposure to DB and how much exposure? It's probably many MANY banks! And how bad will each bank be hurt by DBs collapse?

Then if a few of those banks collapse because of it...which banks had exposure to THOSE banks (and the dominos start falling).

One thing we have going for us is the spot price of gold has not gone insane. It's staying relatively flat at $1500.

If you see gold go up $100 (or more) in a day...it's time to raise your eyebrows.

Let's hope.

You might not get that much warning. Gold could go up thousands in an hour.

They are protecting their own interests, didn't they buy up a lot of stuff in the BO administration?

You might not get that much warning. Gold could go up thousands in an hour.

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If that happens I hope you got food preps at home!!!

It'll be time to hit the vending machines...they wont know the dollar has collapsed!

I was driving & caught a little bit of glen beck on the radio (yeah I know)...

He said the FED did it again last night :(

Bump

BINGO

NAILED IT

Related..


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