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The Fed's support for banks is higher than in 2008

20 Mar, 2023
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The banking crisis in the US is getting out of hand and threatens to spread around the world. According to Capital Economics, the Fed has halted its ongoing quantitative easing (QT) programme as the reserve balance jumped by $440 billion to $3.4 trillion during the week.

Image source: bloomberg.com

Also, in the past week, the volume of borrowing by banks from the Fed to maintain liquidity has exceeded $150 billion, which is 38% more than they loaned in 2008.

Image source: bloomberg.com

The situation is so dire that 11 major banks have placed $30 billion worth of unsecured deposits with the sinking First Republic Bank as a gesture of goodwill. This was likely brought on after coaxing by the Fed and the US Treasury Department, but the details of the deal remain unknown. 

The sad part about the situation is that this support for First Republic Bank isn't giving it any reputational points. Moreover, its clients are still transferring funds to other institutions. What's even worse is the disclosed details of the insider sale of shares by top First Republic executives two months before the fire began (read more in The Wall Street Journal).

Image source: investing.com

Financier and billionaire Bill Ackman posted on social media that the "deal" conducted raises more questions than answers, as the lack of transparency forces market participants to assume the worst. In Ackman's opinion, financial contagion can get out of hand, and "hours matter [but] days have gone by. Half measures don't work when there is a crisis of confidence."

As is traditional for a financial crisis, gold rose in value, gaining 6% over a 10-day period. The trend is even stronger with Bitcoin, which is ideologically opposed to the traditional financial system.

Image source: StormGain cryptocurrency exchange

Galaxy Digital CEO Michael Novogratz said on 15 March that a credit crisis was imminent and that commodity markets were openly hinting at an early recession. He also noted that we're at the dawn of the Bitcoin era, as the cryptocurrency was created in response to the government's rampant money printing in the previous financial crisis.


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