Saturday , October 19 2019
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US Banks Have $1.4T in Excess Reserves Yet Need Daily “Emergency” Fed Actions

Summary:
With .4 trillion in excess reserves, how can there be a problem with overnight funding? Emergency Funding Continues The Fed continued emergency repos today as firms are short of cash. Fed Tackles End-of-Quarter Funding Angst by Extending Repo Plan Bloomberg reports Fed Tackles End-of-Quarter Funding Angst by Extending Repo Plan The New York Fed said it will conduct overnight repurchase agreement operations daily Monday through Friday until Oct. 10. The Sept. 23 operation will be for as much as billion, while the actions thereafter will be for at least that amount. Separately, it will also conduct three 14-day term operations for an aggregate amount of at least billion on Sept. 24, Sept. 26 and sept. 27, according to a statement. “The Fed just reminded the market that they

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With $1.4 trillion in excess reserves, how can there be a problem with overnight funding?

Emergency Funding Continues

The Fed continued emergency repos today as firms are short of cash.

Fed Tackles End-of-Quarter Funding Angst by Extending Repo Plan

Bloomberg reports Fed Tackles End-of-Quarter Funding Angst by Extending Repo Plan

The New York Fed said it will conduct overnight repurchase agreement operations daily Monday through Friday until Oct. 10. The Sept. 23 operation will be for as much as $75 billion, while the actions thereafter will be for at least that amount. Separately, it will also conduct three 14-day term operations for an aggregate amount of at least $30 billion on Sept. 24, Sept. 26 and sept. 27, according to a statement.

“The Fed just reminded the market that they have complete control over the front-end if and when they want it,” said BMO Capital Markets strategist Jon Hill. “Given the volatility we saw this week, they want to ensure quarter-end goes as smoothly as possible.”

Complete Control?

That the Fed has to do these operations is a guaranteed sign that things are not under control.

Bad Optics

"It's very bad optics to have to come in with emergency anything day in and day out," said Danielle DiMartino Booth, CEO of Quill Intelligence.

Understanding the Issue

Overnight Lending?

We are clearly not talking about "overnight lending".

A crisis has been going on for days.

Beneath the crisis is my observation that companies are using overnight repos, continually, to fund normal operations. Parties no longer trust the collateral.

It took a mid-month crisis to flush this out.

The Fed's alleged solution is to give companies at least $30 billion "14-day" lending, repeated of course, indefinitely. This is on top of at least $75 billion daily.

Excess Leverage

I smell an excess leverage, borrow-short, lend-long scheme of some sort that has seriously gone awry.

Anyone else come to that conclusion?

Mike "Mish" Shedlock

Mike Shedlock
Mike Shedlock (Mish) is a registered investment advisor representative for SitkaPacific Capital Management (http://www.sitkapacific.com/). Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

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