Federal Reserve Alert! 'Primary Credit' (the principal safety valve for ensuring adequate liquidity in the banking system) at 152.85B!!! for week of March 15th, up from 4.581B last week and up from 2.306B one year ago.
This is a change of 3.24K% from last week and 6.53K% from one year ago.
Good afternoon Superstonk, resident jellyfish back again and I would like to revisit our discussion, 'Primary Credit'--the principal safety valve for ensuring adequate liquidity in the banking system that has banks borrowing cash from the Fed at 4.75% to the tune of $152.85 billion this past week up from 4.581B last week and up from 2.306B one year ago. This is a change of 3.24K% from last week and 6.53K% from one year ago.
https://ycharts.com/indicators/us_loans_to_depository_institutions__primary_credit
Overview:
Federal Reserve lending to depository institutions (the โdiscount windowโ) plays an important role in supporting the liquidity and stability of the banking system and the effective implementation of monetary policy. By providing ready access to funding, the discount window helps depository institutions manage their liquidity risks efficiently and avoid actions that have negative consequences for their customers, such as withdrawing credit during times of market stress. Thus, the discount window supports the smooth flow of credit to households and businesses. Providing liquidity in this way is one of the original purposes of the Federal Reserve System and other central banks around the world.
The "Primary Credit" program is the principal safety valve for ensuring adequate liquidity in the banking system. Primary credit is priced relative to the FOMCโs target range for the federal funds rate and is normally granted on a โno-questions-asked,โ minimally administered basis. There are no restrictions on borrowersโ use of primary credit.
https://www.frbdiscountwindow.org/Pages/General-Information/Primary-and-Secondary-Lending-Programs.aspx
Here are some examples of common borrowing situations:
- Tight money markets or undue market volatility
- Preventing an overnight overdraft
- Meeting a need for funding, including a short-term liquidity demand that may arise from unexpected deposit withdrawals or a spike in loan demand
The introduction of the primary credit program in 2003 marked a fundamental shift - from administration to pricing - in the Federal Reserve's approach to discount window lending. Notably, eligible depository institutions may obtain primary credit without exhausting or even seeking funds from alternative sources. Minimal administration of and restrictions on the use of primary credit makes it a reliable funding source. Being prepared to borrow primary credit enhances an institution's liquidity.
Why is this so interesting?:
Outside of the current news, a lot of banks have a ton of cash right now! We see this with the current reserves at $3.030 Trillion.
What are reserves? They are when the banks put cash on deposit at the Fed and the Fed pays them interest. Why won't they lend to each other? If they are all so financially stable, wouldn't that be an easy way to undercut the Fed and make 4.75%? (make more that IORB while helping another 'sound friend' save a little?)
https://ycharts.com/indicators/us_total_reserves
TLDRS:
So back to Primary Credit, I wonder which institution(s) are seeking โno-questions-askedโ "no restrictions on borrowersโ use of primary credit." to the tune of to the tune of $152.85 billion this past week @ 4.75% up from 4.581B last week and up from 2.306B one year ago. This is a change of 3.24K% from last week and 6.53K% from one year ago.
The sudden rise in Primary Credit shows big players are trying to get as much liquidity backstop as possible and are increasing their borrowing from the Fed, happily paying 4.75% to borrow billions.
Why?...
