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

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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

Foreign Banks Benefit More From Fed Interest on Excess Reserves

A Fed study shows foreign banks can more easily take advantage of Interest on Excess Reserves (IOER) than US banks.

Bloomberg Columnist Explains Why Fed Pays Interest on Excess Reserves – Very Poorly

A question on paying interest on excess reserves came up during Janet Yellen’s recent congressional testimony.

US Overnight Interest Rate Surges to 10%, Fed Injects Emergency $75 Billion

Overnight interest rates surged to 10% and no one understands why.

Fed to Increase Emergency Repos to $120 Billion, But Hey, It's Not Monetary

The Fed announced today it would increase "Overnight" repos to $120 billion.

Free Money Calculation: Fed Will Give $36.93 Billion of Taxpayer Money to Banks

The Fed upped the interest it pays on excess reserves to 1.95% today. This is free money (taxpayer funded) to banks.

Free Money! Banks Paid $22 Billion to Not Lend?

Excess reserves of depository institutions peaked at $2.7 trillion in August of 2014. By December of 2016, excess reserves fell to $1.9 trillion but have since climbed back to $2.2 trillion.

St Louis Fed Discloses More Free Money: A Carry Trade in Liquidity

Not only do banks earn free money on excess reserves, they can borrow money and make guaranteed free money on that.

Are Banks Hoarding Cash? Debate Over “Free Money” Interest on Excess Reserves

In response to Free Money! Banks Paid $22 Billion to Not Lend? I received a comment from economist Professor George Selgin who said I do not know what I am talking about.