Bank Term Funding Program Blows Up In Final Minutes...

Summary

The transcript discusses the controversy surrounding the Federal Reserve Bank's term funding program, which attracted arbitrage from banks seeking to profit from the borrowing rate spread. As the program's end approaches, questions arise about its legitimacy and the banks' reluctance to use the discount window due to stigma. The Fed's push for banks to utilize the discount window is met with resistance, and the recent increase in BTFP usage at the last minute raises concerns about the banking system's stance on the discount window and potential liquidity issues. The conversation highlights the challenges faced by banks in managing their liquidity and loan portfolios amidst economic uncertainty and the potential implications for the Federal Reserve's policies and the banking system's stability.

Takeaways

• 🏦 The Federal Reserve Bank's term funding program (BTFP) was a controversial emergency measure that attracted arbitrage from banks seeking to profit from the borrowing rate spread.
• 💰 Banks were borrowing from BTFP and leaving their reserves with the Fed to earn interest, raising questions about the legitimacy of their need for funding.
• 📉 Despite the Fed shutting down arbitrage opportunities, there was a sudden increase in BTFP usage just before its termination, indicating banks might still be in need of funds.
• 🚪 The Fed and bank regulators are pushing for banks to use the discount window as a primary source of funding, aiming to remove the stigma associated with it.
• 🔄 There's a concern that banks are avoiding the discount window due to its negative perception, despite the Fed's efforts to promote it as a viable option.
• 📈 The total balance in the Fed's primary credit or discount window is significantly lower than the increase seen in the BTFP, suggesting a preference for the latter.
• 🤔 The sudden increase in BTFP usage at the last minute raises questions about the banks' reluctance to use the discount window and potential underlying issues.
• 🏥 The banking system may still be in a precarious state, with banks continuing to need more funds rather than paying back existing loans.
• 💡 The Fed's insistence on banks using the discount window could be an attempt to address the stigma and ensure banks have access to funds in times of need.
• 🌪️ The next few months will be crucial in determining the outcome of the banking system's liquidity challenges and the effectiveness of the Fed's policies.
• 🌐 The economic backdrop adds to the uncertainty, with recent statistics suggesting a shaky economy and potential risks to the banking sector.

Q & A

What was the Federal Reserve Bank term funding program (BTFP) and why was it controversial?

The BTFP was an emergency measure implemented by the Federal Reserve Bank to provide funding to banks. It was controversial because it attracted arbitrage from banks seeking to profit from the spread between the borrowing rate offered by the BTFP and the rates they could earn by leaving their reserves with the Fed. Additionally, there were concerns about how many banks were using the BTFP as a legitimate source of funding rather than as a means for arbitrage.

Why did the Federal Reserve prefer banks to use the discount window instead of the BTFP?

The Federal Reserve preferred banks to use the discount window because it is a more traditional and transparent method of providing liquidity to banks. The use of the discount window was seen as a way to reduce the stigma associated with it and to encourage banks to use it as a regular source of funding in both good and bad times, thus eliminating the negative perception that the discount window was only for banks in severe distress.

What was the increase in the BTFP loans in the final week before the program was shut down?

In the final week before the BTFP was shut down, there was an increase of $3.4 billion in additional loans. This increase occurred despite the Fed's efforts to discourage arbitrage by setting the lending rate to equal the borrowing rate, suggesting that banks were still seeking funding from the Fed rather than from other sources.

How did the total balance in the Fed's primary credit or discount window compare to the increase in the BTFP loans in the same period?

The total balance in the Fed's primary credit or discount window was just $2.3 billion, which was smaller than the increase in the BTFP loans of $3.4 billion during the same period. This indicates that the demand for funding from the Fed was higher in the BTFP than in the traditional discount window, even as the BTFP was being phased out.

What challenges do banks face in repaying the one-year loans from the BTFP that are coming due?

Banks face challenges in repaying the BTFP loans as they may not have sufficient funds or collateral to do so. The reluctance to use the discount window due to stigma or lack of eligible collateral could force banks to seek alternative sources of funding or to negotiate new terms with the Fed, potentially leading to a crisis of confidence if they are unable to meet their obligations.

What was the role of the Federal Home Loan Banks (FHLB) in providing advances to banks during the 2008 financial crisis?

During the 2008 financial crisis, the Federal Home Loan Banks (FHLB) provided advances to banks as a form of emergency funding. However, their role was not intended to be that of a lender of last resort, but rather to help banks put together mortgage securities and foster home ownership. The FHLB has since clarified that their advances are not meant for general liquidity needs and should not be used as such.

Why did the FHLB change its stance on providing advances for non-traditional purposes?

The FHLB changed its stance because it recognized that its role in providing secured advances must be distinguished from the Federal Reserve's financing facilities, which are designed to provide emergency financing for troubled financial institutions facing immediate liquidity challenges. The FHLB does not have the capacity to serve as a lender of last resort for troubled members with significant borrowing needs over a short period of time.

What economic indicators suggest that the US economy may not be as robust as the mainstream narrative suggests?

Recent economic indicators such as downward revisions to payroll reports, declining retail sales, and an increase in credit card delinquencies and foreclosures suggest that the US economy may be facing challenges. These indicators point to potential risks in consumer spending, the real estate market, and the banking sector's loan portfolios, contradicting the narrative of a robust and resilient economy.

How might the banks' reluctance to use the discount window and the increase in BTFP loans reflect on the overall health of the banking system?

The banks' reluctance to use the discount window and the increase in BTFP loans suggest that the banking system may still be facing liquidity challenges and that there is a continued need for external funding. This could indicate that banks are not confident in the economic recovery and are cautious about extending new loans or repaying existing ones, which could signal underlying risks and vulnerabilities within the system.

What is the potential impact of the banks' funding challenges on the broader economy?

The banks' funding challenges could lead to a tightening of credit conditions, reduced lending to consumers and businesses, and a slowdown in economic activity. If banks are unable to secure sufficient funding or repay their debts, this could result in financial instability and potentially lead to a broader economic downturn, especially if it coincides with other negative economic indicators.

What does the future hold for the banking system and the Fed's efforts to normalize the use of the discount window?

The future for the banking system and the Fed's efforts to normalize the discount window use is uncertain. It will largely depend on how banks manage their liquidity needs and whether they can find alternative sources of funding. The Fed's success in encouraging banks to use the discount window without stigma will be a key factor in determining the stability of the financial system and the overall health of the economy.

Outlines

00:00

🏦 Controversy Surrounding the Federal Reserve Bank's Term Funding Program

This paragraph discusses the controversy around the Federal Reserve Bank's Term Funding Program (TBFP), which was an emergency measure that became more contentious over time. It highlights the arbitrage activities of banks seeking to profit from the spread between the borrowing rate from TBFP and the Fed's lending rate. The paragraph also raises questions about the legitimacy of banks using TBFP as a funding source and the preference of the Federal Reserve for banks to use the discount window instead. It mentions the increase in TBFP loans just before its shutdown, suggesting that banks might still prefer this option over the discount window despite the Fed's stance.

05:02

💸 Banks' Reluctance to Use the Discount Window and the Impact of Collateral

The paragraph delves into the reasons behind banks' hesitance to use the discount window, despite regulators' push for its use. It highlights the issue of collateral, as banks that lack sufficient collateral might have previously turned to TBFP. The discussion includes the challenges faced by banks like Signature Bank, Silicon Valley Bank, and First Republic, which were not viable without collateral and thus could not access the discount window. The segment also touches on the potential implications of the Federal Home Loan Banks' reluctance to provide advances in emergency situations, which could further limit banks' options for emergency funding.

10:04

📉 Economic Uncertainty and Banks' Struggle with Loan Repayment

This section focuses on the economic uncertainty and the challenges banks face in repaying loans. It discusses the lack of improvement in the banking system's condition, as evidenced by the lack of growth in lending and the contraction in commercial industrial lending. The paragraph raises concerns about the banks' ability to repay TBFP loans and the potential for a crisis of confidence in the Federal Reserve. It also touches on the narrative of economic robustness versus the reality of economic indicators and the impact of high unemployment claims on banks' loan portfolios.

15:05

🚨 The Impending Reckoning for Banks and the Future of Lending

The final paragraph discusses the impending challenges for banks as TBFP loans need to be repaid and other funding options are limited. It highlights the banks' reluctance to approach the discount window due to stigma and lack of collateral, and the potential for increased delinquencies and foreclosures. The segment also considers the impact of economic indicators on banks' willingness to lend and the potential for a toxic mix of risks in both loan portfolios and funding. The paragraph concludes by looking ahead to the next three months as a critical period for understanding how these issues will play out.

Keywords

💡Federal Reserve Bank

The Federal Reserve Bank, often referred to as the Fed, is the central banking system of the United States, responsible for implementing monetary policy and regulating the nation's financial institutions. In the context of the video, the Fed is discussing its emergency measures, such as the term funding program (BTFP), and its preference for banks to use the discount window for funding instead.

💡Term Funding Program (BTFP)

The Term Funding Program (BTFP) is an emergency measure introduced by the Federal Reserve Bank to provide liquidity to banks facing funding pressures. It allowed banks to borrow from the Fed against certain types of collateral. The program became controversial due to arbitrage activities by banks seeking to profit from the interest rate spread. In the video, it is mentioned that the Fed is shutting down the BTFP and that there was a sudden increase in borrowing just before its termination.

💡Arbitrage

Arbitrage refers to the practice of taking advantage of price differences in different markets to make a profit. In the context of the video, banks were engaging in arbitrage by borrowing at favorable rates from the BTFP and then depositing their reserves with the Fed to earn interest, thus profiting from the spread.

💡Discount Window

The discount window is a facility provided by the Federal Reserve Bank where eligible financial institutions can borrow money on a short-term basis against eligible collateral. It is intended to be a lender of last resort, providing liquidity to banks facing temporary funding issues. The video emphasizes the Fed's push for banks to use the discount window instead of the BTFP.

💡Stigma

In the context of the video, stigma refers to the negative perception associated with using the discount window for funding. Banks may be reluctant to borrow from the Fed through this route as it could signal financial distress, potentially leading to a loss of confidence from investors and depositors.

💡Liquidity

Liquidity in financial terms refers to the ability of an asset to be converted into cash quickly and with minimal impact on its price. For banks, maintaining sufficient liquidity is crucial to meet their short-term obligations and ensure smooth operations. The video discusses the liquidity challenges faced by banks and their reluctance to tap into the Fed's discount window.

💡Collateral

Collateral is an asset or security that is pledged as a guarantee for the repayment of a loan. In the context of the video, banks needing to borrow from the Fed's discount window or other emergency lending facilities must post collateral. The issue arises when banks lack sufficient collateral, which was a problem encountered during the 2008 financial crisis.

💡Federal Home Loan Banks (FHLB)

The Federal Home Loan Banks (FHLB) are a system of banks in the United States that provide financial products and services to support the housing market, liquidity, and the community development activities of their member financial institutions. Unlike the Fed's discount window, the FHLB is not traditionally seen as a lender of last resort, but they have provided advances to banks in need of liquidity in the past.

💡Repo Market

The repo, or repurchase agreement, market is a financial market where borrowers receive short-term loans by selling securities and agreeing to repurchase them at a higher price at a later date. It is a crucial source of short-term funding for financial institutions. The video implies that banks may turn to the repo market as an alternative to the Fed's discount window when facing liquidity issues.

💡Economic Uncertainty

Economic uncertainty refers to a situation where there is a lack of clarity about future economic conditions, making it difficult for businesses and consumers to make informed decisions. In the video, the discussion around the banking system's reluctance to use the discount window and the impending repayment of BTFP loans reflects a broader economic uncertainty affecting the US economy.

💡Credit Card Delinquencies

Credit card delinquencies refer to cases where cardholders fail to make the minimum required payments on their credit card balances. An increase in delinquencies can signal financial stress among consumers and potential risks for banks, as it may indicate that borrowers are struggling to meet their debt obligations.

Highlights

The Federal Reserve Bank's term funding program, known as BTFP, was a controversial emergency measure.

Banks engaged in arbitrage by borrowing from BTFP and leaving reserves with the Fed to earn interest.

The Federal Reserve prefers banks to use the discount window and is shutting down BTFP.

Despite BTFP's shutdown, there was a significant increase in loans from the program in its final week.

The total balance in the Fed's primary credit or discount window was much lower than the increase in BTFP loans.

Bank regulators are pushing for the use of the discount window, almost as if they want to take the Fed back to its earliest days.

Banks are reluctant to use the discount window due to the negative stigma associated with it.

Federal Reserve Vice Chairman Bar emphasized the importance of banks using the discount window without stigma.

The banking system may still be signaling its reluctance to use the discount window despite BTFP's last-minute surge.

Banks may face challenges in finding collateral for the discount window, as was the case during the 2008 crisis.

Federal Home Loan Banks (FHLB) have become closer to a lender of last resort than the Federal Reserve.

FHLBs are now discouraging advances for anything more than expanding mortgage books, limiting emergency funding options for banks.

The Fed's emphasis on the discount window suggests there may be underlying issues not being addressed.

Banks are not taking up the Fed's invitation to use the discount window, including those considered 'good' banks.

The repayment of BTFP loans is uncertain, and banks continue to need more money, contradicting the narrative of a stable banking system.

Economic indicators, such as retail sales and foreclosure rates, suggest a shaky economy and potential risks for banks.

Banks may be forced to use the discount window as other funding options diminish, creating uncertainty about the terms and conditions.

The situation could lead to a crisis of confidence in the Fed as banks avoid it as a lender of last resort.

The Fed may have to cut rates to help banks sell upside-down assets and raise cash, despite not wanting to.

The unfolding situation over the next few months will be crucial in determining the stability of the banking system and the economy.

Transcripts

the Federal Reserve Bank term funding

program a controversial emergency

measure that became more controversial

as its life went on toward the end it

had attracted all sorts of Arbitrage

from banks that were seeking to profit

from the spread the borrowing rate that

they could get from btfp and then just

leaving their reserves on with the fed

and getting paid

Ro however there was always the question

about how many banks were actually using

the BT FP as legitimate source of

funding that maybe they couldn't get in

the marketplace well that question is

likely to be answered in the months

ahead and as it is as we're asking that

question the Federal Reserve has said

they prefer that Banks use the discount

window one of the reasons why they're

shutting down the btfp in addition to

this the bad press related to the

Arbitrage they want everyone to use the

discount window and they're not the only

ones Bank Regulators all across the

federal government are pushing discount

window discount window discount window

almost as if they want to take the the

FED back to the

1910s in its earliest days well just

recently the banking system sort of said

we don't want to use the discount window

because even though the Federal Reserve

shut down the btfp as of this past

Monday March 11th their statistics show

that during this past week which would

have been just Monday March 11th 3.4

billion in additional loans were made in

the btfp now that couldn't have been the

Arbitrage because the FED shut that down

back in January making sure that they

were charging a lending rate that

equaled I therefore there's no Arbitrage

free money there which raises the

question who was actually looking to the

btfp at the last minute in order to

engage in more lending from the fed and

it wasn't just the final week the week

before there was an increase in the btfp

a smaller one of 548 million but still

as this thing is being shut down

suddenly there's Banks rushing to it and

by the way the total Val total balance

in the fed's primary credit or discount

window as of this latest week was just

2.3 billion so there was a bigger

increase increase at the btfp than there

is in the total outstanding at the

discount window as the FED is shutting

down the btfp so Steve Steve vaner help

me make sense of this here the FED says

we're not going to use the btfp and then

suddenly in the last possible second a

bank or several Banks show up and say

3.4 billion more please you know Jee

this is setting up a crisis of

confidence because the FED is supposed

to be the lender of Last Resort and what

happened a year ago in March is they

weren't the lender of Last Resort

because everyone said there's such a

Negative stigma of getting money from

you we're going to go everywhere else

even to places what maybe we shouldn't

and those places said well we really

don't want to lend you but gosh given

what's going on right now we have no

choice and this doesn't look good for

the FED at all because here you have

their banks that they regulate going

everywhere else for money except them

and now they're trying to clean that up

and say look we're okay to go borrow

from forget those Decades of things that

we said to make you think that this is a

bad place in fact it should be

considered a good thing if you if you

need money well just come to us there's

no negative stigma but the problem is as

you know Jeff there is a massive Nega

stigma in the marketplace and the banks

do not want to go there the challenge

now is we knew a year ago that these

were all one-year loans from the bank

term funding program we knew they were

going to come due the Fed was betting

that somehow some way of course the

economy would recover things would

change and you could just take bad loans

and cover them up with new loans for

somewhere else the issue we have now is

the banks don't have the money we know

that they don't want to go to the fed

and so here we have a problem the

balance is or the payments are coming

due what are the banks going to do

that's a good question because Federal

Reserve Vice chairman bar last December

December 1st he gave a speech which

basically said discount window discount

window we want everybody to go to

Discount window and I know you've

mentioned this before in some of your

videos too the FED has said we're going

to force Banks to use the discount

window whether they like it or not

whether they want to use it or not we're

going to make sure that they use it the

quote that I have from bar is Banks need

to be willing to use the discount window

in good times and bad in other words

they should be there all the time

therefore there would be no Stigma if

everyone was using it so the question I

have is that this btfp use at the last

possible minute is that the banking

system saying yeah there's still stigma

we don't want to go to the discount

window just yet or are there other

issues beyond that with maybe collateral

because the discount window requires

posting collateral that's in their

experience last year during the banking

crisis Signature Bank Silicon Valley

Bank and First Republic they did not

have the collateral to go to the

discount window because if they did well

they wouldn't need to go to the discount

window in the first place you go to repo

Market but either way they didn't have

the collateral which is why they were no

longer viable Banks so the question is

this this this really curious increase

in the btfp at the last possible minute

is that the banking system in your

opinion Steve still saying we don't want

to go to the discount window or is there

something else there yeah Jee I I think

it's saying they don't want to go to the

discount window in fact I think the

banks are still hemorrhaging I think

they've got it stabilized and and I'm

going to say that in a nice way to say

they're still in the hospital they still

got things plugged into them and

connected to them but for the moment

they're breathing and everyone says well

it could it can't get any worse but now

they know these payments are do there's

nothing about the banks that have gotten

better it's not like lending is

increased where we've seen them create

you know more Revenue more deposits in

fact we're seeing commercial industrial

lending contract that's not a good sign

here so the challeng is for the banks is

where do you get the money to pay these

loans well if you don't want to go to

the discount window because either you

don't have the collateral or you don't

want the stigma you go to the one last

place you can get it and you squeeze

every last drop out of it and hope that

maybe something changes that's the

question here that's going to happen is

when it doesn't work and as you

mentioned in the of your show what

happens over the next three months is

going to determine a lot because maybe

the banks can fake it for a few weeks or

maybe a month or so then the only other

issue is if that doesn't work this has

to set up a case where the FED is forced

to cut when they don't want to only

reason is to take some of these upside

down assets the banks have so they can

go out and sell in the market raise cash

that may be the only answer Jeff and a

lot of people don't believe the FED

could get back to zero but that may be

the only way out for the banks well

that's true too because one of the the

the uh government institution that

actually is closer to the lender of Last

Resort than the Federal Reserve is the

federal home loan Banks they were that

way in 2008 in fact in 2007 Banks all

across the United States went to their

fhlb and got advances now the fhlb

advances aren't really meant to be a

last resort liquidity they're supposed

to help Banks put together mortgage es

and to Foster more home ownership that's

their original Mission however during

the last 16 years since then the fhbs

have become closer to the to the lender

of Last Resort that the Federal Reserve

supposed to be this discount window is

supposed to be but the fhlb is now

saying we don't want to do this anymore

in fact they put out a report last year

late last year called focusing on the

future and what they said was fhlb fhl

Bank members use advances to support

business operations specific liquidity

needs which allow them to better serve

their communities however has has been

made clear by a number of Market events

since 2008 a number of Market events not

just one or two the role of the H fhlb

banks in providing secured advances must

be distinguished from the Federal

Reserves financing facilities which are

set up to provide emergency financing

for troubled financial institutions

confronted with immediate liquidity

challenges the fhl bank system does not

have the functional capacity to serve as

a lender of Last Resort for troubled

members that could have significant

borrowing needs over a short period of

time when there's a question I mean what

happened last year because more than the

btfp more than the fed's discount window

Banks went to the fhlb and got advances

and the f fhlb is now saying we don't

want to give you these advances in

emergency situation so the fhlb banks

are are taking away an important and

really a significant source and a

significant Outlet of emergency funding

from the banking system as all of this

is coming down which is kind of it's

it's odd how much the FED has been

putting this emphasis on the discount

window which seems like there has to be

something else behind it yeah that's

what's interesting Jee it's like the

fed's getting some pressure maybe it's

just back door meetings with Congress we

don't know to say look you need to get a

hold of your own institutions that you

regulate you know when they have

problems they go to everyone but you and

that problem of course as you noted

stems from the fact that the FED says if

you're going to the FED if our discount

window it's because things were really

bad and boy if you go there it's not

just a slap on a hand at all in this

case now we have to change the tune that

hey you should be going to us well like

you said Jeff in Good Times hey you need

a little bit of money no problem just

give us some collateral and that way it

becomes an Oculus to the investing

public oh the banks just going to the

discount window well that's where Banks

go so why would it be a big issue

there's still some stigma there that

we're going to find out that the public

doesn't like now how the fed's going to

handle that well they're simple well

we'll just close all the other doors

we'll make calls to a federal Home Loan

Bank and everyone else that gives the

banks money said stop doing this change

your policies don't do it send them our

away what will the banks do in this case

that is a mystery here that I don't

think we have an answer to but the

problem is I think we're going to find

an answer but not in the way we'd like

to find one yeah that's a level of

uncertainty and a kind of uncertainty

that is uncomfortable to say the least

because as you're saying Steve the

discount window balance has been

basically flat it hasn't really moved

anywhere so it's not like as the as the

banking system has been prodded and

poked repeatedly by Regulators go to the

discount window go to the discount

window they're saying no we're not going

to the discount out window and so as far

as the banks seem to be concerned

they're not not taking this invitation

and that includes any of the good banks

that you would got to believe like in

2007 the Federal Reserve has all sorts

of informal conversations with the quote

unquote good Banks I'm in 2007 one of

the first things the FED did when the

crisis erupted it got on the phone with

Deutsche Bank and City group and Bank of

America and said hey go borrow from the

discount window so that you you show

everybody that hey this is fine and they

got these Banks to borrow a couple

hundred million each it wasn't much but

they did it in the first stage of the

crisis they had all these big Banks

borrow from the discount window which

didn't really help at all but that at

least they did that and you have to

wonder are those conversations being had

now because the FED continues to push

the discount window and it doesn't if

the conversations are being had it

doesn't seem like it's bearing any fruit

because nobody's using the thing and as

you're saying Steve it's it's it's

coming to the point where we're we're

getting to the Collision where 79

billion in btfp loans have to be repaid

in the next four weeks the fhbs are they

aren't shutting down the advances but

it's clear they're frowning on using

them for anything more than expanding

your mortgage book going back to the

original um the original Mission of the

fhlb banks so yeah as everybody's heard

in the discount window the banks keep

saying we don't want to go to the

discount window there is potential for a

little bit more than uncertainty well

Jee and of course it has to be

uncertainty here because as we've talked

about on your show before if indeed

things were getting better for the banks

what would they be doing is paying back

some of these loans now granted you

could make the case where okay they they

got in an Arbitrage situation so why

would you pay that back but they should

be paying back these loans and in a big

way because they wanted to tell their

depositors hey look you know what things

were not good back in March last year we

we screwed up we made some bad decisions

we're s sorry but look we learned from

our mistakes we're actually coming back

stronger than ever you can bring your

deposits back you can trust us but what

we continue to see is just the opposite

of that is they continuously need more

and more money to now to the point where

the fed's just kind of like standing out

there with flags saying come here to the

you know discount window and borrow from

us the problem that nobody seems to be

really addressing Jeff is why aren't the

banks paying this back because if

they're not paying it back then this no

Landing or soft Landing scenario that

we're going to hear next week from Fed

chair drone Bal Champion again just like

he did on 60 Minutes seeing that we've

stuck this Landing we nailed it we did

it is not true at all and that's the

what's dangerous here what I'm so

concerned about yeah there's that

economic sort of background element to

all this uncertainty too because yes

while the narrative in the mainstream is

that the US economy is robust and

resilient recent statistics don't seem

to agree with that at all even in the

latest payroll report as we've covered

useum here um where the establishment

survey looked good in the latest month

of course it was revised heavily

downward uh the previous months and then

the household survey sent some

substantial recession signals we got

more data this week retail sales in the

United States again more downward

revisions to previous estimates and then

a lackluster bounceback in February

suggesting that consumer spending may

just have hit that wall that everybody's

been waiting for and now that the

economy looks increasingly shaky in some

of these real important hard data

statistics not just in the pmis though

the pmis don't look good either maybe

that's part of this too because banks

have to you know you're sitting back as

a bank thinking I gotta lend it to this

real economy I don't care what GDP says

I don't care what J Powell says I got to

look at these borrowers in the shape of

borrowers I mean the Dollar Tree and a

Family Dollar in Dollar General the

major dollar store said they just this

week our customers can't afford to shop

at our dollar stores so the banks are

not going to be like yeah let's go out

and make a lot of loans it also puts

them as you're saying Steve on the spot

because they also that also considers is

a major consideration in their liquidity

management strategies as well so maybe

they're just sticking at the btfp

because it's the best or the least worst

option let's put it that way least worst

option right now and that the as that

rolls off and the btfp gets shut down

banks have to really do take a hard look

at the discount window because there

really isn't a whole lot of options

which is the real big Point here yeah

Jee I think banks are going to be forced

there um under what terms yet we don't

know because we don't know at what point

where the banks are going to be

screaming so loud that that's that's our

only option but we can look at the

credit card data we can see that

delinquencies and defaults are starting

to rise there banks are noting that and

just today I saw some data that says us

foreclosures are up 8% over a year ago

so you start to think about from the

banks perspective here if the economy

was indeed healing if we did stick this

soft Landing or no Landing or whatever

Landing you want to call it we should be

seeing the opposite Trend we should

start to say hey you know what these

numbers were rising of delinquencies

foreclosure but now they're trending

down and yeah okay maybe the banks need

some cash to buffer you know maybe for

the next year or so through this until

everything normalizes but we're seeing

the data go in the wrong direction and

with continued claim staying you know up

around 1.8 million which historically as

you know Jeff it's actually low but not

low when you're coming off a very low

level of claims it suggests that longer

these people are unemployment the less

money they have to make payments on

their debt that becomes a challenge for

the banks and I think that's what we're

hearing here the ultimate question is

how does this all play out well we'll

find out over the next three months as

you said yeah it's one of we can

continue to move in the same direction

however slowly where it's no longer just

risks to the US economy because the

banks have to lend into this real system

they have to look for these borrowers

and say you know they don't look like

they have enough of income prospects to

make it worth doing so and at the same

time now they have to worry about their

liquidity profile and their management

it's a pretty bad mix here it's it's not

it's not condu I mean it would be one

thing if the Soft Landing was was

actually unfolded

and the banking system would be

corroborating that inin their activities

when they're saying risks everywhere

risks in our loan portfolios risks on

the liability side with funding we don't

see the same Market funding that we got

or at least that we would expect in this

type of environment it really is as you

said Steve it really is a pretty toxic

mix so we we'll see how this works out

moving forward looking ahead looking

much farther head at more optimistic

monetary stuff the crypto Revolution the

real one it just had a really good

conversation with Andy Bromberg about

just that and that's the video linked

below as always I thank you very much

for joining me huge thank you your doity

members and subscribers and until next

time take

care