The ECB raises rates, the FED creates a new QE to finance its banks
If the ECB tries to do everything to sink the credit system with rate hikes, the Fed has launched, almost silently, a bank rescue tool that looks a lot like QE, quantitative easing, in favor of banks at stars and stripes, to prevent a crisis.
The Fed's newest bank bailout tool, the Bank Term Funding Program ( BTFP) , was designed to prevent banks facing a deposit outflow from being forced to sell their bonds or assets at a loss making your situation worse. This is done through the Fed's acceptance of eligible collateral at par, thereby maximizing banks' ability to borrow from this funding facility.
As noted yesterday, and as Goldman confirmed this morning, the use of the BTFP is kept secret for two years, so it will not be known which banks will use it, precisely to avoid runs to the counter. Many banks will use this refinancing tool when any market instruments, such as the sale of certificates of deposit, have been exhausted. This will mean that the tool should be used in a rather limited way.
Fed officials reportedly stated that "the BTFP is large enough to cover all uninsured deposits in the United States." Of the roughly $18 billion in domestic deposits, about $7 billion are uninsured. Eventually the facility will be used not by large banks, but by struggling medium-sized banks, so its use is expected to be limited to around $2 billion. The crumbs, for the FED, but enough to avoid a banking crisis.
It is worth noting that there is no limit to the amount that a single bank can borrow, meaning that any single depository institution can borrow up to the face value of eligible collateral. Furthermore, even though the US Treasury will guarantee the BTFP with $25 billion from the Exchange Stabilization Facility, this does not necessarily limit the potential size of the program, as it can be used multiple times. This means that the ammunition available to the FED is practically unlimited.
So, in any case, the American Central Bank wants to avoid tensions in the banking system, and it does so at any cost, confident that in any case the promise of intervention is sufficient to avoid the worst. What a difference with the attitude of the ECB.
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The article The ECB raises rates, the FED creates a new QE to finance its banks comes from Scenari Economics .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-bce-aumente-i-tassi-la-fed-crea-un-nuovo-qe-per-finanziare-le-proprie-banche/ on Fri, 17 Mar 2023 08:00:02 +0000.