$2Tn Thursday – Fed Bailout Sweeps Bank Issues Under a Huge Rug


US Reserves Decline as Fed Hikes Rate$2,000,000,000,000!  

That’s the magic number for the Fed’s Bank Term Funding Program (BTFP – get used to saying it), which is aimed at injecting funds into the US banking system and easing the liquidity crunch. But as JPM warns, this program is likely to be big, indicating that we may have massive problems that are still unseen by the public.

This massive bailout follows a series of events that have hit the markets one after the other; from the collapse of three lenders to the liquidity crunch caused by the Fed’s quantitative tightening and rate hikes – the banking sector has been facing significant challenges.

It’s no wonder that Treasury 2-year yields have tumbled more than 60 basis points this week amid speculation that the Fed will skip the interest-rate hike next week as it seeks to stabilize the banking sector (since those two things appear to by dynamically opposed).  The fact that the Fed feels that $3Tn of reserves remaining in the US banking system (see chart above) is NOT ENOUGH to address the tightening that has taken place over the past year has got to be a little bit concerning, right?  

Lurking just beneath the surface (x-post /r/thalassophobia) • /r/creepy |  Beneath the surface, Creepy, LurksIt’s clear that the Fed is taking drastic measures to prevent a fire sale of sovereign debt to obtain funding, and the BTFP (see, comes in handy already!) is just one of them. BUT, as we watch this massive bailout sweep bank issues under a huge rug, it’s hard not to wonder what other problems are still lurking beneath the surface?

It’s hard not to question the ethics of a system that requires such massive bailouts to keep it afloat.  Perhaps it’s time for the banking sector to take a long, hard look at its practices and start prioritizing the needs of the people it serves over its own self-interest?  

Elizabeth Warren, writing in the New York Times, argues that recent bank failures in the United States are a direct result of the weakening of financial regulations in Washington. She points out that, in 2018, big banks lobbied Congress to roll back critical parts of the Dodd-Frank Act, which was put in place after the 2008 financial crisis to protect consumers and prevent banks from causing economic disaster.

An Old Cartoon From Your History Book Gets An Awesome Revamp In Honor Of Elizabeth  WarrenThe loosening of these regulations allowed banks to take on more risk and make decisions that threatened their stability. Warren asserts that this is what led to the recent collapse of Silicon Valley Bank and Signature Bank.

She correctly argues that Congress, the White House, and banking regulators should reverse the deregulation of the Trump era and reform deposit insurance to ensure that businesses are fully covered, while the cost of protecting large depositors is borne by the institutions that pose the greatest risk. She also urges elected officials to demand stronger oversight rather than the weaker oversight the Banksters have been enjoying.  

Greg Becker, CEO of Silicon Valley Bank, lobbied Congress to weaken the law in 2018 and the big banks won. With support from both parties, Trump signed a law to roll back critical parts of Dodd-Frank, which were enacted to protect us after the last crisis.  Regulators, including Fed Chair Powell, then made a bad situation worse, ‌‌letting financial institutions load up on risk.

In fact, Becker took home $9.9 million in compensation last year, including a $1.5 million BONUS for boosting bank profitability — AND its riskiness!  Joseph DePaolo of Signature Bank got $8.6 million as a reward for taking more risk with his bank’s money.  That’s the way the incentives run – make money at all costs and losses will be borne by the taxpayers…

Bond March 16 2023By taking on all the low interest-paying notes the banks have, the Fed gets to pretend all is well because they don’t have to redeem them so, even though the redemption value of a note may be 15% below the face value, the banks are being allowed to sell them to the Fed at full price. 

TECHNICALLY, since the Fed doesn’t have to re-sell the notes, they will collect the 1.25% (or whatever) interest until maturity and then they get back their $1,000 so – not only do they not show a loss – but they show a profit on the interest!  It’s the perfect crime because the Fed’s magic checkbook allows them to first claim the note as an asset and then use that asset to back the money the Fed creates to buy the note from the bank.  

It seems victimless but that same obligation could have been taken on by the Fed to wipe out 100% of all student loans ($1.7Tn) or to build a $300,000 home for all of this countries 500,000 homeless people ($150Bn – I don’t know why we don’t do this anyway in our $6.8Tn budget).  Or, the Fed could just become a bank that lends money to ordinary citizens when they want to buy a home and they could take your home as an asset and you can pay them back whenever – that’s what banks do!  

Belushi But No Snl GIF - Belushi But No Snl - Discover & Share GIFsBut Noooooo! We just sit back and let the banking sector continue to prioritize its own self-interest over the needs of the people it supposedly serves. We just accept the fact that the Fed is bailing out banks to the tune of Trillions of dollars while Millions of Americans struggle with Student Loan Debt, Homelessness, and lack of access to Affordable Housing and Affordable Health Care.  

We need to DEMAND stronger oversight of the banking sector and a reversal of the deregulation that has allowed banks to take on more risk and make decisions that threaten their stability BEFORE the next crisis is upon us.  We need to ensure that Deposit Insurance is reformed to protect businesses and depositors, and that the cost of protecting large depositors is borne by the institutions that pose the greatest risk.

We need to hold the CEOs of these banks accountable for their actions and demand that they prioritize the needs of their customers over their own profits.  And we need to demand that the Fed uses its magic checkbook to invest in the people and the future of this country, not just in propping up a broken banking system – over and over again.  

So let’s not just accept another massive bailout as business as usual.  Let’s use this moment to demand real change, to demand a system that works for everyone, not just the wealthy few.  Why should we accept anything less?  


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Schwab owns TDAmeritrade… Should we be concerned about the brokerage accounts?

Phil, can you confirm or repudiate the following. So, the above chart means many banks:

  1. have off balance sheet losses
  2. these banks will have to use the BTFP to replace some percentage of capital lost to said enumerated losses above
  3. After posting collateral required to take the BTFP loan, those banks will either not be allowed take outsized or bullish banking/business/balance sheet risks, or will just not want to
  4. this will result in economic slow down, GDP contraction

is that accurate?

or anyone else. do i have it wrong?

The banks are not going to just use the BTFP program to lend out more – it is to avoid drawdowns – so all banks can get money using high quality collateral, get the par value of this collateral, and use that to pay depositors when people start withdrawing money.

well, exactly, it only replaces money they already had, and their behavior as a bank is incrementally more conservative based on the events that have transpired and their public need to get funds from the BTFP.

Where I am lost is – the rate for the BTFP is the 1-year overnight index swap (OIS) rate + 10 basis points; in this case, that’s 4.5-4.6% (using the SOFR for the OIS) – so this seems stop mass selling of treasuries for liquidity, but not sure how the interest money is being paid? A bank bought a bond for 102, then rates shot up so it is now worth 90. Now suddenly a depositor wants 100 back – so they give the bond to the fed, get 100, and pay the depositor. They still need to pay 4.5 per year as interest, right? Or is defaulting on the loan ok?

i have no idea what the penalty would be for defaulting on the loan, but it must be severe. Once you take a last ditch bridge loan from the Fed, one would assume you are being very, very careful how you are using the money. maybe you end up like SIVB if you default on a BTFP loan.

or not. it kind of seems like the filthy rich have just got the whole market cornered. but i do just ask myself ‘what are the Schwab executives doing this last week and how will they behave over the next two quarters?’ they must be crapping their pants and battening down every hatch on the Schwab ship. i don’t think Chuck was out there shilling on TV this week for nothing.

buy /cl again here?

hi phil

when did this 2 trillion bailout get announced they havent mentioned it on bloomberg all night just credit swisse 50 billion loan and europe increase rate by .05.


Good Morning. I used SQQQ to hedge but noted that when the S&P sold off yesterday the QQQs did not. Would like your thoughts on using an SPXS bcs (more liquid than SDS but not nearly as liquid as SQQQ) …say 1/24 21/31 for 1.30 or 1/25 21/31 for 1.65 (as of this AM)?
Your thoughts, please

The way I look at it, my largest positions are aapl, goog, so I am more concerned about what qqq does. If I was less tech heavy, then maybe a different hedge.

it’s amazing. LaGarde raises 50, but the Polish Zloty didn’t budge agains the dollar. that is very, very unusual.

Polish Zloty?….. 😉

well I watch the Zloty as a fear guage. you can read Europeans tendency to hoard or not hoard dollars through the price action. watching the Euro gives more of a read on macro policy while something like the Zloty gives a reaction from the wealthy to what they think of the macro policy.

I am tempted to enter PRU now at 80. 2025 70-85 BCS with short $60 Puts; net of <$1.5 in the $15 spread.

Or maybe just buy stock and sell straddles with a current 6+% dividend.

Phil/Schwab or any of these Broker/banks… Is that the whole company or just the bank, because the employee count is way off?

does anyone know why they would halt trading on stocks that are popping up
like frc and pacw are at the moment.


Limit up?

Usually that means there is significant announcement coming out on the stock. Example there are rumors of a large capital infusion agreement in place for FRC.

OXY / Phil What do you think Buffett finds so compelling about OXY?

if you are working on the portfolios then you can answer later, no hurry

Yelling at one of our future overlords seems like a bad idea.

‘chat’GPT, Phil; not ‘yell’GPT.  😀 

hey Phil, the answer is turning out to be 4.2!

i’m just kidding around about how its trading a 4.17, you know, almost 4.2

from yesterday, when we were discussing Hitchhikers’ Guide and I said the anwer in the 2 year futures might be 42. (4.2)

it looks like all the expected good news is in. Quite a ride!

Yes I was just thinking about you.
What did you do today?
I was guessing you didn’t do anything today…and now you are waiting for FRC to rally (you have until Dec), unless you bought more $25 calls this morning

I am living vicariously through you, drooling!

My broker has banned:


I was going to buy $10,000 worth of CS stock…I figured I could double my money sometime today..

I wonder when JPM will be banned…

Oddly enough, TD itself is not banned….

Last edited 5 days ago by vidt


I closed all positions over the last three days for $58,800. net profit.
I have an order in for 30 Dec 25 calls @ $6.00. but primarily I think the ride and extreme volatility is over. So back to basics. Did the zero investment spread on WBA I mentioned yesterday.

Canadian Banks like TD are very well capitalized. In the 7 decades I have been in Canada I have never seen a chartered bank fail. I did see one regional fail and the Government “immediately announced” guaranteed repayment of all depositors. It’s a different system than the USA.

Are you in Ontario? which broker do you use?

No Calgary Alberta.
I don’t use a broker. Just Phil. There is “no one” in Canada that has his knowledge of option ideas I have ever come across.
I trade accounts at both IBKR and CIBC.

Thanks Tully.

Actually it wasn’t a regional bank that failed it was a regional Trust company.

Nice trade DT, very impressive with the FRC spread!