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The Fed just dropped $18.5 billion into the banking system this week. It's only the fourth biggest cash infusion since the pandemic panic and even tops the dot-com bubble's peak. (fred.stlouisfed.org)

submitted 1 day ago by yogthos@lemmygrad.ml to c/us_news@lemmygrad.ml

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[–] FuckyWucky@hexbear.net 9 points 1 day ago* (last edited 1 day ago) (1 children)

Asset swaps (reserves for Treasuries) of equivalent value which are reversed the following day (hence, temporary and overnight)

[–] chesmotorcycle@lemmygrad.ml 7 points 16 hours ago (1 children)

Can you explain? It sounds like you think this isn't a big deal, even though the amounts are very large.

[–] FuckyWucky@hexbear.net 2 points 9 hours ago* (last edited 9 hours ago) (1 children)

Treasuries, particularly short term ones are considered near monies, they are highly liquid and the Fed accepts it as collateral (routine monetary policy). That's how they manage the interest rate they set, called open market operations.

Why could this be happening right now? Maybe some bank needs reserves (clearing balances, used for settling accounts between banks), non bank institutions also have access to the window I think.

Post 2008, the Fed shoved billions of Dollars of clearing balances into the system think it'll increase lending (it didn't as lending isn't reserve constrained but supply-demand constrained ie ppl must be willing to take loans), that's what kept these windows so quiet for long, people called it money printing but whether that's the case depends on what they accept as collateral. If they accept junk private debt then yes it's "quasi fiscal", if its Treasuries, then no.

[–] chesmotorcycle@lemmygrad.ml 2 points 6 hours ago (1 children)

Thanks for that. So why might a bank need so much reserves? Just clearing unusually large balances?

[–] FuckyWucky@hexbear.net 3 points 6 hours ago* (last edited 6 hours ago)

Reserves are what are used by banks when you transfer money from one bank to another, when Treasury tells you to give certain account money (social security, Gov payments in general) or when you withdraw cash (since cash is a Government liability, not bank liability).

The clearing balances (aka reserves) are held at the Fed, it's Government's liability. Banks can only clear debts between one another using a higher up liability (and that's Gov).

Banks don't need reserves, they need what is known as HQLA (High Quality Liquid Assets) which includes Treasuries. These can then be presented to the Fed or in the interbank market for reserves if needed.

But since they shoved so much reserves, maintaining interest rate by paying interest on reserves, these windows had been very quiet.

See https://billmitchell.org/blog/?p=13078