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The U.S. Federal Reserve&#39;s (Fed) balance sheet expanded by $297 billion to $8.63 trillion in the week of March 15, reaching the highest value since November. The sharp increase has crypto Twitter saying that the world&#39;s most powerful central bank has restarted &#34;quantitative easing&#34; or QE, which involves buying assets like government bonds and mortgage-backed securities to inject liquidity into the financial system. QE initiated after the 2008 crash and following the March 2020 crash expanded the Fed&#39;s balance sheet by trillions and stimulated asset prices, including cryptocurrencies.However, the recent balance sheet expansion stemmed mainly from banks borrowing short-term loans from the central banks to cope with the crisis of confidence triggered by the collapse of three U.S. banks, including the start-ups focused-Silicon Valley Bank.&#34;QE is increasing the balance sheet for monetary purposes. This is about financial stability, and all expansion of the balance sheet is not QE,&#34; Marc Chandler, chief market strategist at Bannockburn Global Forex and author of the book &#34;Making Sense of the Dollar&#34; told CoinDesk in an email. Official data show banks borrowed a record $152.9 billion from the Fed&#39;s discount window. The central bank&#39;s lending facility provides loans to institutions, helping them manage liquidity risks and avoid bank runs.Banks also borrowed $11.9 billion from the newly created Bank Term Funding Program (BTFP), a liquidity lifeline for banks guaranteeing loans with holdings of U.S. Treasuries. This also is not a free money as borrowing banks must pay interest rates defined by the one-year overnight index swap (OIS) rate plus ten basis points.Lastly, $142.8 billion were lent to the new bridge banks created by the Federal Deposit Insurance Corporation (FDIC) for the crisis-stricken Silicon Valley Bank and Signature Bank.In the meantime, the Fed&#39;s holdings of Treasuries and mortgage-backed securities declined by $7 billion and $2 billion, respectively, as part of the central bank&#39;s quantitive tightening (QT) program kicked off in June last year. All things considered, the net assets on the Fed&#39;s balance sheet increased by $297 billion, undoing months of the central bank&#39;s efforts to shrink its balance sheet. But, that&#39;s not necessarily stimulative like QE.&#34;The increase in the balance sheet is a temporary reflection of the runs on the various weak banks,&#34; Andy Constan, CEO of Damped Spring Advisors, said in a tweet thread.Constan added that bank reserves (liquidity) created by the newly launched BTFP program would be stimulative if those receiving the reserves create money for investment or consumption. &#34;If they keep it at the Fed, it does nothing,&#34; Constan noted. That said, the record borrowing by banks does signal a fear of liquidity drying up fast, a risk to banking sector stability. That may boost demand for bitcoin, which is now being seen as a hedge against bank runs.

Crypto Twitter Thinks the Fed's $297B Balance Sheet Expansion Is 'QE', But It's Not

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Andre artikler udgivet 17. mar. 2023

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