Back in September 2019, the Fed announced it would begin implementing a number of repurchase “repo” programs. If you’re unfamiliar with repo programs, these are programs through which the Fed allows financial banks/ institutions to park assets at the Fed, in exchange for cash.
At the time the Fed announced this, it claimed that it was performing these programs to help with a capital crunch due to tax season. However, that excuse was soon proven to be total bunk as the repo programs were extended from September through October and finally through January.
At the same time, the repo programs grew in size from $75 billion for overnight repos and $30 billion for term repos, to $120 billion in overnight repos and $45 billion in term repos.
Why would the Fed be doing this? After all, the economy was growing at the time, and there were no indications or systemic risk in the U.S. financial system.
The Fed was doing this because a financial institution or institutions were in BAD SHAPE and desperate for capital. By bad shape I mean “Lehman Brothers” type failure.
We do not know who it is but considering the fact that the Fed announced an emergency round of $1.5 TRILLION in repos last week… and even that stopped the market not from collapsing, suggest it’s a very LARGE institutions (think the size of Deutsche Bank or UBS).
With this in mind, it doesn’t matter what happens with coronavirus or with the economy. If a large systemically important financial institution or bank fails, we could get a Lehman-like liquidation in the markets.
If you think I’m being dramatic here, consider that the EIGHT largest U.S. banks just announced they are going to start accessing the Fed’s Discount Window: a means through which the Fed gives banks access to capital overnight.
The banks haven’t done this since 2008. The fact that even $1.5 TRILLION in repos didn’t fix this issue means it’s truly a systemic problem.
www.zerohedge.com/news/2020-03-17/...lehman-event-prepare-now
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