Fed and other central banks try to head off crisis by keeping dollars flowing

[BumRushDaShow]

Source: CNN Business

London CNN — The US Federal Reserve and several other major central banks announced a coordinated effort Sunday night to boost the flow of US dollars through the global financial system with the aim of keeping credit flowing to households and businesses.

“The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing US dollar liquidity swap line arrangements,” the central banks said in a joint statement.

Sunday’s statement came just hours after Swiss authorities orchestrated an emergency takeover of Credit Suisse by UBS. Credit Suisse — one of the 30 most important banks in the global financial system — was bleeding money last week after investor and customer confidence collapsed.

Market turmoil triggered by the second and third biggest bank failures in US history earlier this month is threatening to make it harder for people to borrow money, US Treasury Secretary Janet Yellen said last week. “If banks are under stress, they might be reluctant to lend,” Yellen said Thursday in testimony to the Senate Finance Committee. “We could see credit become more expensive and less available.”

Read more: https://www.cnn.com/2023/03/19/economy/central-banks-fed-dollar-liquidity

[bucolic_frolic]

1. The only tool to fight deflationary collapse from printing too much money

is to print more money to keep the system liquid.

I don't remember much in the way of banking crises in the 1970s inflation. A few small banks in NYC I think, as well as credit problems for the city of New York. Thank you, Felix Rohatyn, you did something besides Pinochet. Now we have a global liquidity crisis. This is called progress, or the price of progress, depending on your orientation.

https://en.wikipedia.org/wiki/Abraham_Beame

Abraham David Beame (March 20, 1906 – February 10, 2001)[2] was an American accountant, investor, and Democratic Party politician who was the 104th mayor of New York City, in office from 1974 to 1977.[3] As mayor, he presided over the city during the 1975 New York City fiscal crisis, when the city was almost forced to declare bankruptcy.

[Autumn]

2. Funny. I don't feel like there is a financial crisis.

[Alexander Of Assyria]

4. Something smells fishy about this all...2 small banks in America, and one larger in EU...??

Triggers possible world financial system collapse? Is it all so damn fragile?

Fish cakes on the grill!

[BadgerKid]

8. Coming for a while...banks and hedge funds got greedy

betting on financial collapse due to COVID. Now some seem trapped.

[hedda_foil]

3. Next week should tell the tale.

Frankly, I'm more than a little on edge that the world economy is teetering on the brink once again. If the banks crash, I'm afraid the result won't be like the Obama-era recovery, which was bad enough. President Biden would give us his best, FDR-style economic policy responses, which the House wouldn't pass. Biden and the Dems would get the blame, though it's far from their fault. And we can look forward to a future in the depths of the MAGAverse, with all that implies, in 2024.

[MOMFUDSKI]

5. It sickens me that they bailed out a bank after

the 2008 shitshow. I expect it to be dominoes all the way down this coming few weeks. And we will see who gets the short straw.

[SheltieLover]

6. Kicking for Visibility

[Evolve Dammit]

7. We will find out soon. The international ripple is troubling.

[Joinfortmill]

9. What the holy hell? Jerome Powell might want to consider stepping down.

[Lucky Luciano]

10. It is the banks' fault primarily. You'd think they would know interest rate risks.

[Mawspam2]

11. This is what happens when banks get stuck on...

...more than a decade of 'free money. The Fed kept interest rates artificially low for waaaaay to long.

Who knew that a virus killing a million workers and disabling a couple million more would lead to this? Obama did.

In US news and current events today, former President Obama predicted the need for quick pandemic response in 2014. Obama called for more pandemic preparedness following the ebola epidemic in West Africa. Obama also stressed the importance of preparedness in a 2005 New York Times op-ed as a freshman U.S. senator. Watch Obama warn about pandemics in this clip. The Trump administration is under intense backlash for failing to properly prepare for the coronavirus pandemic.

[Alexander Of Assyria]

15. ....is happening because some oligarchs needed their money back. Only a crisis to some.

Looks that that is almost done, crisis averted…close call! And the peasants don’t even suspect!

[Farther]

12. Worse case senario anyone?

https://www.usatoday.com/story/money/personalfinance/real-estate/2023/03/19/svb-collapse-new-banks-could-fail/11504269002/

If you follow the "study" link in the article you can read the whole study. They suggest that 190 banks could fail and deposits under 250k, those fdic insured, could be at risk. Scary stuff.

[quakerboy]

13. Seems like this would be a handy time

to have replaced Trump's postal board members, and have a USPS standing ready with a postal bank program.

[IbogaProject]

14. Two issues, derivatives and similar holdings

The two issues I can think of is all the derivatives outstanding which nominally out size the economy 50 to one in size compared to the real economy. Another issue is many of these second tier banks use services and may all be holding similar securities. Finally groups of 'activist' investors may slowly pick off a bank or two at a time. Our banking system has been a house of cards since the 1980's and got worse with the repeal of the Glass-Steagall limits separating investment banking from consumer banking.

https://wallstreetonparade.com/2023/03/the-next-bomb-to-go-off-in-the-banking-crisis-will-be-derivatives/

[Lucky Luciano]

17. Derivatives are not 50:1 the real economy.

Dollar notionals of derivative contracts are not the same as value.

A one billion notional one year OIS swap has an initial value of zero. If rates instantly move by 1%, it’s approximate value would be $10 million.

The losses by SVB are really dumb. I mean super dumb. They got long mortgage bonds - but that’s sort of irrelevant. They could have gotten long treasury notes/bonds and succumbed to the exact same risk - namely that rates were going higher. When rates go higher longer term bonds get pounded. They wanted to just earn the coupon from the bonds, but the value of the bonds get destroyed. They will still get paid the principal at maturity, but the immediate value is considerably lower…and that immediate value is what matters when customers immediately want their money.

It is a disgrace that a business that has the expectation of being experts in rates knows less than mom and pop investors about rate risks.

They could have seen the inflation and rate risks from the Fed’s well telegraphed communications and EASILY hedged accordingly, but they opted not to. No chief risk officer evidently- who would have noticed on day one of the job.

[SWBTATTReg]

19. Easily hedged accordingly. These are the words people need to listen for. You're exactly right.

You would think that an enterprise that has been around for so long, and thus, know the markets in and out, etc., would have thought to protect its investments by simply hedging. Sure, this would have taken more of their anticipated profits, but it would have saved their ass when it mattered.

Too late now.

My ? is why so much exposure that should (and it did) the markets turn, it would drag them down.

[Farmer-Rick]

16. Not another bank crash

Boy, this is one fragile, snowflake banking system we have.

Ever since the free traders took away the FDR style bank regulations throughout the world system we have had crashes and lots of failed banks. From the FDIC:

"Loan losses were practically nonexistent during the war years, and bank failures declined significantly. Only 29 insured banks failed from 1942 to 1946. The decline in the number of failed banks was due to the highly liquid state of bank assets, the absence of deposit outflows, and vigorous business activity. Conservative banking practices and favorable economic conditions also resulted in few bank failures during the late 1940s and 1950s. The low incidence of failures was regarded by some as a sign that the bank regulators were too strict. Years later, in a speech marking the dedication of the headquarters building of the FDIC in 1963, Wright Patman, then-Chairman of the House Banking and Currency Committee, declared:

…I think we should have more bank failures. The record of the last several years of almost no bank failures…is to me a danger signal that we have gone too far in the direction of bank safety.2-1

Banks continued to operate in a safe, insulated environment until the 1960s, when changes began to occur."

https://www.fdic.gov/bank/historical/managing/chronological/1933-79.html

This deregulated banking system is broken. Leave it to a Texas congressman to say the stupidest things.

[sanatanadharma]

18. An economy that can't function without nearly free Federal funding (low interest loans) ...

... is clearly a failed economy.

But then any economy that creates so much wealth in the hands of the few is an economy that MUST fail.
Too much money in the hands of too few is incapable of producing real Adam Smith wealth. The wealth becomes stagnant, dormant or gambled away in increasingly more risky adventures attempting to increase the wealth beyond the already insanely immoral greed (or pathological fear).