Thread by @Trinhnomics

Good morning!!! Standing repo facility is all the rage. Btw, just a reminder that banks get paid 1.8% on excess reserves w/ the Fed. Add regulation to this & u see why they hoard liquidity vs lending out.

Data was OK out of the US but weak elsewhere & so USD strong despite cut!

Back to this rage for standing repo facility (see my earlier thread on how the Fed works etc). Let's look at reserves at the Fed: Currently USD1.39trn, down from peak of 2.73trn or a -1.34trn. The Fed currently pays 1.8% for required reserves & excess reserves.

Chart & table👇🏻

Fed write-up on why it needs a SRF:

*Reserves >1trn & much more than pre 2008 (~20bn) but Basell III & Dodd-Frank regulations cause a large demand for high-quality liquid assets (HQLA)
*SRF helps convert treasuries to reserves to help overnight repo

stlouisfed.org/on-the-economy…

Why banks are hoarding liquidity @stlouisfed : REGULATIONS!!! Two regulations often cited in earning calls or surveys as to driving banks’ demand for cash-like assets are the liquidity coverage ratio (LCR) and resolution plans.

stlouisfed.org/on-the-economy…

@stlouisfed What's liquidity coverage ratio (LRC)?

Standardized min daily liquidity requirement for large & internationally active banking orgs. Formula-based metric of liquidity that requires a bank’s HQLA to be larger than its projected net cash outflows over a 30-day stress period 👇🏻.

@stlouisfed What's resolution plans?

Known as living wills to ensure large banks can rapidly &orderly resolve in the event of material financial distress. To ensure banks have enough short-term liquidity to cover demands from stakeholders and counterparties during such an event.

👇🏻👇🏻

@stlouisfed So what is influencing banks' behavior? REGULATIONS (the above I mentioned). Rates on reserves are at the bottom for influencing banks' hoarding of reserves. From top:

Internal liquidity stress metrics!!! (basically preparing for the worst b/c of regulatory demand of such prep)

@stlouisfed For those not satisfied w/ this great primer by the Fed, you can get really involved w/ this paper by the @BIS_org 🤓:

All about Basel III: The Liquidity Coverage Ratio and
liquidity risk monitoring tools

Fun fun fun 🥳

bis.org/publ/bcbs238.p…

@stlouisfed @BIS_org What not to say on a 1st date: You are one of my high-quality liquid assets (HQLA) 😬!!!

What you can say (although coming off w/ a bit of occupational hazard esp if u'r a treasury person):

In times of significant stress, you are the HQLA, allowing me to survive 30 days🤓😉🥳