1/17-💭What we're facing is a #TRUST crisis rather than a #BalanceSheet crisis. There’s been a lot of amalgamation between #BTFP and #QE, but they are different, and their consequences will be different as well. My thoughts 👇
#CreditSuisseBankruptcy #BankingCrisis #AllianceBlock
#CreditSuisseBankruptcy #BankingCrisis #AllianceBlock
2/17- 🏦 #BTFP (1):
- Involves banks depositing HTM bonds and AFS securities at the Fed as collateral against borrowing the At Par Value for 1 year
- Funds are likely to be used for immediate liquidity needs, backstopping bank runs and making depositors whole
- Involves banks depositing HTM bonds and AFS securities at the Fed as collateral against borrowing the At Par Value for 1 year
- Funds are likely to be used for immediate liquidity needs, backstopping bank runs and making depositors whole
3/17- 🏦 #BTFP (2) : Unlikely to result in new credit being extended, and banks are likely to tighten lending standards until the dust settles
- Velocity of money in the banking system should instead decrease, offsetting any increase in reserves
- Velocity of money in the banking system should instead decrease, offsetting any increase in reserves
4/17 It is important to note that since the 2008 financial crisis, the share of Treasuries on commercial bank balance sheets has increased from 10% to over 20% due to post-2008 capital requirements. Therefore, depositors, through banks, have partly financed the US debt...
5/17 and it is not farfetched for the Federal Reserve, as a lender of last resort, to ensure that depositors are made whole. We can blame the banks for bad risk management,
6/17 but we can also blame the Fed for miscalculating the consequneces of hiking rates too quickly, or the previous government for signing the #ReformAct and weakening many of the #DoddFrankAct provisions. But as the 🇩🇰 Danes say ""Blame is the lazy man's wages."
7/17 💰#QE (1)
- Involved the Fed purchasing Treasuries and other securities directly from banks and on the open market to create new cash out of thin air
- New cash ended up on bank balance sheets, which they were supposed to use to increase lending to businesses and consumers
- Involved the Fed purchasing Treasuries and other securities directly from banks and on the open market to create new cash out of thin air
- New cash ended up on bank balance sheets, which they were supposed to use to increase lending to businesses and consumers
8/17 💰#QE (2)- Actually helped propel a massive bull due to excess cash sitting idle and too low interest rates to make Fixed Income investment attractive
9/17💰#QE: (3)- Greater availability of cash contributed to lower interest rates, and higher asset prices. Since 2008, this cash barely trickled 🚰 down to create any growth in the real economy
10/17⚡THE REAL RISK (1)
-What is eye opening is that Treasuries, the safest and most liquid of assets, are neither #safe nor #liquid
-They are not safe when you don’t hedge your Interest Rate Risk correctly and write them under HTM assets ...
-What is eye opening is that Treasuries, the safest and most liquid of assets, are neither #safe nor #liquid
-They are not safe when you don’t hedge your Interest Rate Risk correctly and write them under HTM assets ...
11/17 ⚡THE REAL RISK (2)
...on your Balance Sheet (separate conversation on stress testing not applying to non systemic banks in the US (AUM <$250Bn) and Accounting Rules Topic 320)
...on your Balance Sheet (separate conversation on stress testing not applying to non systemic banks in the US (AUM <$250Bn) and Accounting Rules Topic 320)
12/17 ⚡THE REAL RISK (3)
- They are not safe when your local market is in turmoil (Germany’s 2 year Bond front month futures had the largest moves between intraday highs and lows ever on March 15th)
- They are not safe when your local market is in turmoil (Germany’s 2 year Bond front month futures had the largest moves between intraday highs and lows ever on March 15th)
13/17 ⚡THE REAL RISK (4)
- As my good friend @Kathleen_Tyson_ highlighted many times, they are not as liquid as they should as we keep seeing extreme intraday price swings in government bonds (German, US, Chinese), used as benchmarks for the pricing of a host of other assets
- As my good friend @Kathleen_Tyson_ highlighted many times, they are not as liquid as they should as we keep seeing extreme intraday price swings in government bonds (German, US, Chinese), used as benchmarks for the pricing of a host of other assets
14/17 ⚡THE REAL RISK (5)
-Old rules are no longer applicable: Shareholders had no voice as Swiss Government forced #CS/#UBS merger. However important it was to backstop CS, it is a dangerous precedent where governments can from a moment to another take complete control
-Old rules are no longer applicable: Shareholders had no voice as Swiss Government forced #CS/#UBS merger. However important it was to backstop CS, it is a dangerous precedent where governments can from a moment to another take complete control
15/17❓ WHAT DOES THIS MEAN❓(1)
-Global Economy is very fragile, What was Safe is not Safe anymore
-Back in 2021, I highlighted that #bitcoin is a good hedge against a #BlackSwan event affecting TRUST in the Fed/US government, and we are here now
-Global Economy is very fragile, What was Safe is not Safe anymore
-Back in 2021, I highlighted that #bitcoin is a good hedge against a #BlackSwan event affecting TRUST in the Fed/US government, and we are here now
16/17❓ WHAT DOES THIS MEAN❓(2)
- The stakes are high, with heightened panic leading to an increased risk of failure of the global financial system, and less panic leading to a higher risk for investors and depositors
- The stakes are high, with heightened panic leading to an increased risk of failure of the global financial system, and less panic leading to a higher risk for investors and depositors
17/17 ✳ So what’s the solution
Diversify your counterparties, Diversify your asset, Diversify your risk
Diversify your counterparties, Diversify your asset, Diversify your risk
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