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FDIC on High Alert: The Largest Outflows of Deposits in US History. Fed' QT Backfires, Creating A Liquidity Crisis.
Bloomberg News And JPMorgan Chase Questionable Relationship Reviewed.
Here is what we will be getting into today:
Lessons from 1930 Ignored as Deregulation of Criminality Takes Its Toll on the Global Banking Industry.
The Fed's Quantitative Tightening Policy Backfires, Triggering a Liquidity Crisis.
The Dubious Relationship Between Bloomberg News and JPMorgan Chase Under Jamie Dimon's Leadership.
Understanding the Federal Reserve's Discount Window and Bank Term Funding Program.
Let's Dive In!
Website: Zen Second Life
Title: GLOBAL BANK RUN aka. BTFP
Here are the key highlights:
The global banking industry is facing a crisis with a combination of factors making it un-investable post-pandemic. The lack of regulation, bad investments, higher interest rates, and lack of protection for depositors and investors are among the reasons for the current situation.
Additionally, the Federal Deposit Insurance Corp. (FDIC) has been aware of a stealth bank run for the past year, which has led to the largest outflows of deposits in U.S. history. This is due to depositors discovering higher-yielding options like Treasury bills and money market funds as the Federal Reserve increases interest rates.
However, community and smaller regional banks are getting hit the hardest by the rising funding costs. The situation has become critical over the past week, with a significant bank deposit exodus.
The FDIC fund has limited funds that will be depleted by the blanket bailout of SVG and Signature banks. To guarantee all bank deposits without limit, the FDIC would need a vote from Congress, which is unlikely. This has led to the liquidation of regional stocks as a viable asset class, and the ‘Buy The Pivot’ stock market rally is a short-covering rally similar to the TARP rally in October 2008.
While the stock market remains complacent, the bond market is seeing 2008 level distress. The collapse in bond yields has caused a massive rotation to tech stocks under the belief that they are a safe haven from global turmoil.
Investors need to understand that once a bubble bursts, it doesn't become a bubble again for a very long time. Central banks are tightening into a burgeoning credit crisis, which means we have entered the most lethal financial crisis since 1930.
The current crisis is the result of the serial deregulation of criminality, and it is coming to a final hard landing. Even the biggest dunce will understand the lessons learned in 1930 that stood for 70 years until the Idiocracy decided they were smarter than everyone who came before them.
Newsletter: The Last Bear Standing
Title: The Death of QT.
Here are the key highlights:
Quantitative tightening (QT) has proven to be a failure, and the Federal Reserve must recognize this fact to avoid repeating past mistakes. The recent bankruptcy of Silicon Valley Bank has set off a chain reaction of panic, forcing the Fed to provide new liquidity injections to the banking sector. This liquidity crisis is exacerbated by the structure of modern monetary plumbing, which is split into four major components: the money printer/money shredder, the Treasury General Account, the Reverse Repo Facility, and the cash in commercial banks. The Fed's decision to reduce liquidity via QT without considering these internal dynamics has sparked a banking crisis.
The Federal Reserve's quantitative tightening (QT) policy is causing challenges in the banking sector, as there is not much excess cash left in the banks to remove. The need to refill the Treasury General Account after the resolution of the debt ceiling is expected to draw a considerable amount of the remaining bank liquidity, making it unlikely that QT can continue much longer without further exacerbating the challenges.
As well, the Fed needs to re-examine its view on RRP as the RRP balance is not excess liquidity, but rather liquidity that has already been removed from the financial system. Therefore, the Fed cannot interpret it as a license to tighten liquidity even further.
The recent balance sheet expansion that has occurred is not QE, but a direct asset swap between banks and the Fed. Although inflation may be a nuisance to central bankers, financial instability is their kryptonite, and in each instance of financial disruption, they will provide immediate accommodation.
By focusing exclusively on more highly regulated GSIBs (Globally Systemically Important Banks), the Fed underestimated the risk in under-regulated small and regional banks and the role that panic and contagion can play in bank runs.
Website: Wall Street On Parade
Title: JPMorgans High Risk Footprint; Bloomberg News as PR Agent for Jamie Dimon; and the Untold Story of the Failed Rescue of First Republic by the Mega Banks
Here are the key highlights:
The Bloomberg News website recently featured a headline touting JPMorgan Chase CEO Jamie Dimon and former Federal Reserve Chairwoman Janet Yellen for their role in helping to secure a $30 billion lifeline for First Republic Bank. This headline is yet another example of Bloomberg News' tendency to highlight positive aspects of Dimon's leadership, while censoring the genuine issues that have taken place at JPMorgan Chase under his supervision
Under Dimon's tenure, JPMorgan Chase has been charged with five felony counts by the U.S. Department of Justice, and is ranked as the riskiest bank on the planet by U.S. banking regulators and the Basel Committee on Banking Supervision.
In 2012 and 2013, JPMorgan Chase engaged in risky exotic derivative trades with federally-insured bank deposits in London, resulting in a loss of at least $6.2 billion in what became known as the London Whale scandal. The Mayor of New York City at this time was Michael Bloomberg, and instead of denouncing this reckless behavior, he praised JPMorgan Chase CEO Jamie Dimon as a smart and honest executive in an interview with the Wall Street Journal. This was prior to the five felony charges that would by charged.
There is a questionable & cozy relationship between JPMorgan Chase and Bloomberg News, which has included a co-authored opinion piece and JPMorgan Chase's being the second largest customer of Bloomberg's data terminal business.
Questions also arise about the potential legal exposure of JPMorgan Chase and Bank of America, which acted as book-running underwriters of a recent secondary stock offering of First Republic Bank.
Side note, First Republic Bank has lost 72% of its market value year-to-date, with 68% of its total deposits being uninsured by the FDIC. The stock of First Republic Bank dropped 14.7% in after-hours trading following news of the bailout.
Newsletter: Macro Visor
Title: The Fed's Super Discount Window is not QE.
Here are the key highlights:
The use of the Discount Window by banks has recently caused concerns, but it is important to note that no new money is being created, and it is not indicative of bullish behavior.
Borrowing from the Discount Window is a temporary fix to provide depositors with timely withdrawals and to prevent a banking crisis. The stigma attached to borrowing from the Discount Window can incite a bank run, which is why the Fed keeps the names of borrowers confidential.
Lending standards are expected to tighten substantially in the future. Banks will not want to borrow from the Discount Window due to the perceived stress, which could cause reputational damage, and instead, they would try other measures to fulfill withdrawals.
The Federal Reserve has recently announced a new lending program aimed at providing temporary liquidity to banks facing a liquidity squeeze, this is called the Bank Term Funding Program (BTFP). Some have misconstrued this as quantitative easing, but it is important to note that the Fed is still conducting QT.
The lending program comes with strict requirements, including a short-term borrowing period and ownership of eligible collateral prior to a specific date. Banks may be hesitant to participate, as borrowing at this rate would eat into their profitability and the required return on investment would be much higher.
This program is necessary to alleviate the current liquidity squeeze in the system, and the Fed has put in place mechanisms to ensure the burden does not fall on taxpayers. The lending program provides temporary relief to banks and is not a long-term solution.
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