Hygro
soundcloud.com/hygro/
Ok so the banking crisis is on. The Fed decided to raise rates again, today, after this all started. It's looking worse and worse.
Banks are holding treasuries to manage risk. Banks are always leveraged such that a depositor run on the banks will collapse any bank. To mitigate that risk they hold various assets, which means the debts of others. A big one is federal treasuries. In many ways, treasuries are just money. But they aren't exactly, and their value can fluctuate somewhat wildly the further out they are from maturing into regular dollars. Since the interest on new treasuries is much higher than old ones, no one is buying old low interest treasuries years out from maturing except at a super discount.
So the total value of assets of these banks holding low rate bonds is suddenly very low, and their liabilities remain high. They are very vulnerable.
The Fed has allowed the banks to use these bonds as collateral, valued at their maturation-date face value, in securing new loans to secure their positions in the market in case anyone starts pulling their deposits or similar. This should do a lot to make those bonds worth today what they are going to be worth eventually, and therefore "safe" again.
In terms of the numbers it's looking really bad. In terms of leadership things are definitely better than 2007, but with Republicans in the house the government isn't going to be necesarily united in preventing nor solving the crisis.
Every time Powell raises rates, the banks are that much closer to failure from one of their asset groups to another. And already a month into the banking crisis, Powell has chosen to continue raising rates.
Banks are holding treasuries to manage risk. Banks are always leveraged such that a depositor run on the banks will collapse any bank. To mitigate that risk they hold various assets, which means the debts of others. A big one is federal treasuries. In many ways, treasuries are just money. But they aren't exactly, and their value can fluctuate somewhat wildly the further out they are from maturing into regular dollars. Since the interest on new treasuries is much higher than old ones, no one is buying old low interest treasuries years out from maturing except at a super discount.
So the total value of assets of these banks holding low rate bonds is suddenly very low, and their liabilities remain high. They are very vulnerable.
The Fed has allowed the banks to use these bonds as collateral, valued at their maturation-date face value, in securing new loans to secure their positions in the market in case anyone starts pulling their deposits or similar. This should do a lot to make those bonds worth today what they are going to be worth eventually, and therefore "safe" again.
In terms of the numbers it's looking really bad. In terms of leadership things are definitely better than 2007, but with Republicans in the house the government isn't going to be necesarily united in preventing nor solving the crisis.
Every time Powell raises rates, the banks are that much closer to failure from one of their asset groups to another. And already a month into the banking crisis, Powell has chosen to continue raising rates.