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Banks can borrow at asset par value - New Fed lending program
Posted on 3/12/23 at 6:25 pm
Posted on 3/12/23 at 6:25 pm
Seems like solid solution not sure it solves issue
4
Posted on 3/12/23 at 6:27 pm to thelawnwranglers
quote:
Seems like solid solution not sure it solves issue
Hopefully it raises people's confidence in the banks so there's no wider rush on capital next week.
Posted on 3/12/23 at 6:30 pm to OleVaught14
Feels like fed stepped on their own dick with rapid rate increase
Good to instill confidence in good assets
Good to instill confidence in good assets
This post was edited on 3/12/23 at 6:33 pm
Posted on 3/12/23 at 6:34 pm to thelawnwranglers
Explain like I’m five. Specifically asset par value. I’ve followed the big picture of everything else so far
This post was edited on 3/12/23 at 6:35 pm
Posted on 3/12/23 at 6:43 pm to LSURep864
quote:
Specifically asset par value. I’ve followed the big picture of everything else so far
Banks can lend from Fed Govt for face value. I.E. $100 mil loan for $100 mil in collateral.
Posted on 3/12/23 at 6:49 pm to thelawnwranglers
quote:
Feels like fed stepped on their own dick with rapid rate increase
They have. Banks are having to pay out higher interest rates on deposits than many of the loans they've made in the very recent past.
Posted on 3/12/23 at 6:54 pm to LSURep864
quote:
Explain like I’m five. Specifically asset par value. I’ve followed the big picture of everything else so far
Par value equals amount you receive at the end of term.
Let's say I issue $10,000 10 year bond with 1% interest or "coupon rate". So bond says I am going to pay you 1% for life of bond at specified intervals and $10,000 at the end of term. ($10,000 par value) That sounds good pre pandemic that is market rate; You want bond and you give me $10,000 for bond. You get your 1% interest payment and your other choice was burying cash in backyard bc you didn't need it.
Now 3 years later market interest rate has gone up. You need cash and want to sell the bond to Mike the Tiger. You tell Mike look you get 1% interest and $10,000 in 7 years. So hey give me $10,000 that's part value- done deal? Mike the Tiger say no way General Will Wade want to buy McNeese players and offering $10,000 bond with 4% coupon rate. He wants to pay NIL now.
You think about it and tell Mike the Tiger I can't change 1% coupon rate offered by the lawn, but what if I sell you my $10,000 par value bond for $9,500 (or at discount) you will get 4% return over life offered by General Wades bond.
Mike agrees and buys your $10,000 par bond at discount bc market interest rate has gone up and Mike is savvy AF.
Posted on 3/12/23 at 7:07 pm to thelawnwranglers
quote:
Feels like fed stepped on their own dick with rapid rate increase
Good to instill confidence in good assets
Buts it OK groceries are up 50%
Posted on 3/12/23 at 7:28 pm to thelawnwranglers
Fed playing Whack a Mole for survival of US financial system
Posted on 3/12/23 at 7:37 pm to SmackoverHawg
quote:
They have. Banks are having to pay out higher interest rates on deposits than many of the loans they've made in the very recent past.
That isn’t the Fed’s problem.
Posted on 3/12/23 at 7:39 pm to thelawnwranglers
It's a pretty obvious and good solution to what caused svb. Svb still deserves to burn equity wise because their lack of hedging to protect again interest rise.. however, it solves the bank run issue for any other banks with similar problems of too much duration on their fixed income.
It's not like svb gave out bad loans or anything like that, like the gfc. They got caught with no liquidity because of the feds huge movement of fixed income market and they didnt hedge the holdings in case they had to liquidate them. Those treasuries still would have returned that value had they not been forced to sell unlike a bad loan. So while prudent banks would have hedged those treasuries with swaps, it happened directly because of fed action, so they corrected it, without rewarding incompetence (im glad they are letting the equity get whiped out, and i hope they dig deep into the insider selling) on the banks part, and without punishing anyone who had no fault.
But yea, it's like the first gumball stuck onto the first leak that sprung in the hull, but at this point, I dont see how it becomes systemic if fed will just loan money at par so they don't have to face the piper.
This solution also allows them to continue hiking, or at the very least, not cut unless something much more systemic breaks, that's probably why long rates are up compared to Friday right now.
It's not like svb gave out bad loans or anything like that, like the gfc. They got caught with no liquidity because of the feds huge movement of fixed income market and they didnt hedge the holdings in case they had to liquidate them. Those treasuries still would have returned that value had they not been forced to sell unlike a bad loan. So while prudent banks would have hedged those treasuries with swaps, it happened directly because of fed action, so they corrected it, without rewarding incompetence (im glad they are letting the equity get whiped out, and i hope they dig deep into the insider selling) on the banks part, and without punishing anyone who had no fault.
But yea, it's like the first gumball stuck onto the first leak that sprung in the hull, but at this point, I dont see how it becomes systemic if fed will just loan money at par so they don't have to face the piper.
This solution also allows them to continue hiking, or at the very least, not cut unless something much more systemic breaks, that's probably why long rates are up compared to Friday right now.
This post was edited on 3/12/23 at 7:50 pm
Posted on 3/12/23 at 7:58 pm to thelawnwranglers
So they are gonna lend against every banks unrealized under water bond portfolio at par and just hold to maturity if they have to ? Sick
Posted on 3/12/23 at 7:58 pm to Pendulum
Only think that bother me is them saying bond holders are different then depositors
To me should be treat same
To me should be treat same
Posted on 3/12/23 at 7:59 pm to catfish 62
Well it's not fixing their balance sheet, they are getting a loan for that par value, they aren't getting to sell it at par value... but it allows banks to come up with liquidity at least in the event of a bank run. Problem with all this 0 interest paper out there is someone has to hold it
This post was edited on 3/12/23 at 8:10 pm
Posted on 3/12/23 at 8:22 pm to Pendulum
Pretty soon we won’t be talking about college loan forgiveness, we’ll be talking about bank loan forgiveness.
Posted on 3/12/23 at 9:08 pm to SmackoverHawg
(no message)
This post was edited on 3/27/23 at 1:54 pm
Posted on 3/12/23 at 9:11 pm to TigerIron
quote:
If they didn't see rate rises coming, they were morons. It's not like it's a surprise that after years of historically rock bottom rates, followed by spiking inflation, that you'd get rising rates.
I think the run is what they did t expect
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