Nearly half the money — $143 billion — went to holding companies for the two major banks that failed over the past week, Silicon Valley Bank and Signature Bank, triggering widespread alarm in financial markets.
I'm talking about both, but the BTFP is more egregious in my opinion than the changes to the discount window. This discount window serves a purpose that I can at least understand in terms of providing short term liquidity. Allowing the banks to basically dump their bonds with the BTFP for a year is a way to keep their profits high instead of letting them rightfully take a bath on their poor asset management. They say it's about liquidity, but I suspect that it's much more about actual solvency, in how SVB "technically" had a liquidity problem, in that their assets weren't capable of generating enough revenue to cover deposits, and that is because if their assets would have been marked to market, they would have also been (and did end up being) insolvent.
What is more egregious is that they are allowing collateral in both the discount window and the BTFP to be valued at par (the face value of the bonds) instead of marked to market, meaning that collateral will be worth less and less as the Fed continues doing the Volker summoning ritual to kill labor gains. The discount window has been around for a long time, but valuing collateral at par is new.
I'm talking about both, but the BTFP is more egregious in my opinion than the changes to the discount window. This discount window serves a purpose that I can at least understand in terms of providing short term liquidity. Allowing the banks to basically dump their bonds with the BTFP for a year is a way to keep their profits high instead of letting them rightfully take a bath on their poor asset management. They say it's about liquidity, but I suspect that it's much more about actual solvency, in how SVB "technically" had a liquidity problem, in that their assets weren't capable of generating enough revenue to cover deposits, and that is because if their assets would have been marked to market, they would have also been (and did end up being) insolvent.
What is more egregious is that they are allowing collateral in both the discount window and the BTFP to be valued at par (the face value of the bonds) instead of marked to market, meaning that collateral will be worth less and less as the Fed continues doing the Volker summoning ritual to kill labor gains. The discount window has been around for a long time, but valuing collateral at par is new.