"US official says banks not being bailed out" - nah, they're being bailed out, here's how<p>On the news here:</p><ul><li><a href="https://www.forexlive.com/centralbank/us-treasury-official-says-banks-not-being-bailed-out-depositors-are-being-protected-20230312/" target="_blank" rel="follow" data-article-link="true">US Treasury official says banks not being bailed out, depositors are being protected</a></li></ul><p>He is half right, depositors are being protected, but banks are getting a <a href="https://www.forexlive.com/terms/b/bailout/" class="terms__main-term" id="b9ebfa55-d32a-4560-b7ef-8b8026dc3243" target="_blank">bailout</a> and here's how. </p><p>The Federal Reserve announced a new Bank Term Funding Program (BTFP)</p><ul><li>This allows banks to pledge collateral at par.</li><li>This means holdings of long-dated Treasuries or MBS with mark-to-market losses can unlock <a href="https://www.forexlive.com/terms/l/liquidity/" class="terms__secondary-term" id="633aaf0b-b4a1-40c5-8fbe-bf158af520a1" target="_blank">liquidity</a> based on the original value.</li></ul><p>You may recall this from last week, although we've been noting it long before last week:</p><ul><li><a href="https://www.forexlive.com/news/held-to-maturity-bonds-are-about-to-be-a-big-problem-20230310/" target="_blank" rel="follow" data-article-link="true">"Held to maturity" bonds are about to be a big problem</a></li></ul><p>The crux:</p><ul><li>"For the 24 big U.S. lenders in the KBW Bank Index, the combined balance-sheet value of held-to-maturity bonds was $2.21 trillion as of Sept. 30, according to a Wall Street Journal review of their filings. The market value was $1.91 trillion, or 14% less. The gap was negligible when the year started."
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That's a $300 billion hole.</li></ul><p>OK, now this new Bank Term Funding Program (BTFP), as noted above .... means holdings of long-dated Treasuries or MBS with mark-to-market losses can unlock liquidity based on the original value.</p><p>I've seen estimates put the hole at 600bn USD, not the 300bn USD noted above. But, no matter! The Fed program accepts collateral at par, so all those unrealised losses on
held-to-maturity Treasury and MBS securities portfolios ... not a problem. That is, bailout in all but name. </p><p>---</p><p>For monetary policy, now that this is the case, it means the Federal Open Market Committee (FOMC) can proceed full steam ahead on rate hikes. </p>
This article was written by Eamonn Sheridan at www.forexlive.com.
Source: "US official says banks not being bailed out" - nah, they're being bailed out, here's how (https://www.forexlive.com/centralbank/us-official-says-banks-not-being-bailed-out-nah-theyre-being-bailed-out-heres-how-20230312/https://www.forexlive.com/centralbank/us-official-says-banks-not-being-bailed-out-nah-theyre-being-bailed-out-heres-how-20230312/)
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