The Fed Bails out Banks to the Tune of $300B

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The Fed­er­al Reserve (Fed) has expand­ed its bal­ance sheet by near­ly $300 bil­lion to help banks out with loans. So can we expect the return of quan­ti­ta­tive eas­ing (QE)?

The Fed announced that the banks hit with a liq­uid­i­ty crunch had bor­rowed almost $300 bil­lion in the past week. With this bailout, the econ­o­mist Peter Schiff believes the QE is back. He pre­dicts that infla­tion is head­ed much high­er because the Fed has wiped out almost four months of quan­ti­ta­tive tight­en­ing (QT) in one week.

Fed Rescues Banking System With Money Printing

Accord­ing to For­tune, the Fed allo­cat­ed $143 bil­lion to hold­ing com­pa­nies for failed banks such as Sig­na­ture Bank and the Sil­i­con Val­ley Bank. The hold­ing com­pa­nies will use the mon­ey to make the depos­i­tors whole.

Then, the Fed lent $148 bil­lion through a pro­gram called the “dis­count win­dow.”  The amount is record-high than the usu­al bor­row­ing through the pro­gram. Accord­ing to The Guardian, only $4 to $5 bil­lion is bor­rowed in a giv­en week through the dis­count window.

Last Sun­day, the Fed inau­gu­rat­ed Bank Term Fund­ing Pro­gram (BTFP) and lent $11.9 bil­lion. This pro­gram helps the bank raise funds to meet the needs of all depositors.

What Do the Experts Say?

In total, the U.S. cen­tral bank has assist­ed the bank­ing sys­tem with near­ly half the amount that it did dur­ing the 2008 cri­sis. Michael Fer­oli, a JPMor­gan econ­o­mist, believes it is a big num­ber. He says, “The glass half-emp­ty view is that banks need a lot of mon­ey. The glass half-full take is that the sys­tem is work­ing as intended.”

Niko­laos Pani­girt­zoglou, a JPMor­gan strate­gist, esti­mates that the Fed might inject $2 tril­lion into the US Bank­ing sys­tem and reverse the impact of the QT. Gau­rav Dahake, the Chief Exec­u­tive Offi­cer of Bitb­ns, told BeIn­Cryp­to, “Over time, it push­es Bit­coin over $50,000, and Bit­coin halv­ing is about a year away now.”

Banks Have an Unrealized Loss of $620 Billion

The banks pur­chased gov­ern­ment bonds with extra deposits due to the QE dur­ing the 2020 covid cri­sis. But, with the increase in inter­est rates, the price of the bonds fell, and the banks are sit­ting with huge unre­al­ized losses.

The co-founder of Bit­MEX exchange, Arthur Hayes, writes, “Banks are car­ry­ing an unre­al­ized $620 bil­lion in total loss­es on their bal­ance sheets due to their gov­ern­ment bond port­fo­lios los­ing val­ue as inter­est rates rose.”

Banks are in an unrealized loans of $620 billion
Source: Medi­um

Last month, the People’s Bank of Chi­na also turned to Quan­ti­ta­tive Eas­ing mode by inject­ing $92 bil­lion into the market.

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For BeInCrypto’s lat­est Bit­coin (BTC) analy­sis, click here.

Disclaimer

BeIn­Cryp­to has reached out to com­pa­ny or indi­vid­ual involved in the sto­ry to get an offi­cial state­ment about the recent devel­op­ments, but it has yet to hear back.



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