BTFP, stands for Bank Term Funding Program
This will allow banks to borrow from the Fed using Treasury bonds as collateral and valuing them par.
If the existence of the BTFP serves to calm the banks’ clients down, it doesn’t have to commit the money;
if the pressure intensifies, it might have to come up with much more than $25 billion.
If all goes to plan, however, the outcome will be to make bank depositors (not just SVB’s) bear the bulk of the cost.
Investors have spent months betting that a shift in the economy will cause the Fed to pivot — make a sudden move to cutting rates rather than raising them. This has always been unrealistic.
A true pivot requires a danger to financial stability. The cliché is that the Fed must tighten until something breaks. Now that something’s broken, it’s far more plausible that the Fed will change course.
There is an argument that SVB was a unique situation with little implication for the rest of the banking system
One word that is familiar from the GFC which most of us had hoped never to use again is contagion.
As Kambiz Kazemi points out, it was only on Monday last week that SVB made the Forbes list of America's Best Banks for the fifth consecutive year.
Banks are usually valued as a ratio of their book value (the equity on their balance sheet once liabilities are subtracted from assets). Friday’s selloff brought the bigger US banks’ share prices just below book value, so concern is rising. This it still not comparable to the horrors of 2008:
Moral Hazard
This brings us to the debate that boiled over during the GFC. It’s about moral hazard, the concept that people will take greater risks if they’re confident they’ll be bailed out when things go wrong. How and when should regulators take a stand against it?
The disastrous response to the Lehman bankruptcy encouraged traders that the government would have no choice but to bail out further miscreants.
The 2008 implosion left another issue. Virtually nobody was punished. Indeed, prosecutors under the Obama administration barely even tried to hold bank executives to account. This was a moral outrage that makes it far harder to persuade the public at large to support bailouts.
John Authers Bloomberg 13 mars 2023
https://www.bloomberg.com/opinion/articles/2023-03-13/svb-fallout-puts-fed-rate-pivot-back-in-play
Yellen Said "No Bailout" But It's a Huge Bailout of the Banking System
We have the Second Rescue of the Banking System in 15 Years.
That is a free link to a WSJ article.
Here's a flashback hoot of the day. On June 27, 2017 then Fed Chair Janet Yellen said she expects "No New Financial Crisis in Our Lifetimes"
Once again, the Fed kept interest rates too low, too long, encouraged speculation, then bailed out the banks.
Spare me the sap about this was a depositor bailout not a bank bailout. When you value assets at par so that banks don't have losses, what the hell is it.
Mish 13 March 2023
https://mishtalk.com/economics/yellen-said-no-bailout-but-its-a-huge-bailout-of-the-banking-system
Kommentarer