by Summary:
TGA down at 450b area now … So let’s assume they keep screwing around and eventually bottom it out at 50b leaving the current threat at 400b reserves in TGA that could be forced upon the banking system … To cover that 400b, banks would need at least 1/10th of that in capital for SLR of 0.1 … (might be a bit less) but we’ll be conservative … 1/10th is 40b… so eg if banks were given 40b of additional free capital right now, then they could cover those additional 400b reserve assets without effecting any other asset levels/prices at the banks…IOR is providing additional free capital to the banks every month…H.4.1 this week has reserves now up at >3.4T and IOR is 4.40% so that is approx 12b per month of capital flowing to banks every month … 40b/12b per month = 3.333 months so in a bit
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TGA down at 450b area now … So let’s assume they keep screwing around and eventually bottom it out at 50b leaving the current threat at 400b reserves in TGA that could be forced upon the banking system … To cover that 400b, banks would need at least 1/10th of that in capital for SLR of 0.1 … (might be a bit less) but we’ll be conservative … 1/10th is 40b… so eg if banks were given 40b of additional free capital right now, then they could cover those additional 400b reserve assets without effecting any other asset levels/prices at the banks…IOR is providing additional free capital to the banks every month…H.4.1 this week has reserves now up at >3.4T and IOR is 4.40% so that is approx 12b per month of capital flowing to banks every month … 40b/12b per month = 3.333 months so in a bit
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TGA down at 450b area now …
So let’s assume they keep screwing around and eventually bottom it out at 50b leaving the current threat at 400b reserves in TGA that could be forced upon the banking system …
To cover that 400b, banks would need at least 1/10th of that in capital for SLR of 0.1 … (might be a bit less) but we’ll be conservative …
1/10th is 40b… so eg if banks were given 40b of additional free capital right now, then they could cover those additional 400b reserve assets without effecting any other asset levels/prices at the banks…
IOR is providing additional free capital to the banks every month…
H.4.1 this week has reserves now up at >3.4T and IOR is 4.40% so that is approx 12b per month of capital flowing to banks every month …
40b/12b per month = 3.333 months so in a bit over 3 months the banks will have been given the additional capital to potentially support a TGA drawdown to 50b …
We are about to head into a period of at least fiscal balance as taxes are paid (maybe even surplus) … so if we can stabilize TGA here for 3 months then banks might have near the additional 40b of additional capital by then that they will need to cover an additional 400b of reserve flow from TGA ..
So we could stabilize here at the current 10% drop in equities level for a while here if TGA stabilizes…
Then quickly recover this 10% drop when ceiling raised (allowing restart of reserve asset “drains!”) and Fed starts to cut rates in May or June (increasing all bank asset NPVs and capital) …
The problem has been TGA has dropped from 800b to 450b in just the short period since ceiling hit on Fed 20th forcing non risk reserve assets to flow towards the banks and negatively effecting the values/quatity of risk assets to maintain a required constant regulatory ratio…
Not out of the woods yet but maybe some relief from the constant liquidation on the way due to the typical fiscal calendar seasonality….
🤞