A new road was proposed to be cleared in order to give banks unlimited QE potential. Here's the scoop.
There is a relatively little known agency called ISDA (International Swaps and Derivatives Association). They have asked the Federal Reserve (on behalf of US banks) to exempt Treasury securities from the SLR (Supplemental Leverage Ratio), which is essentially the ratio of assets they can loan out versus the bonds they can keep on hand.
In ISDA's own words, here's exactly what they said: "the agencies should revise the SLR to permanently exclude on-balance-sheet US Treasuries from total leverage exposure, consistent with the scope of the temporary exclusion for US Treasuries that the agencies implemented in 2020".
What in the world does all of this mean, and why should you care?
Although we are not in a crisis according to all of these government bureaucracies, asking to exempt Treasuries from SLR reporting would indicate SEVERE STRESS in financial markets, as the last time this happened was in 2020, and it was temporary as the reverse QE window opened once again. It is supposed to be a last failsafe measure to ensure banks are within certain liquidity ranges from a regulatory standpoint.
Basically, the banks can buy Treasury bonds with cash [they create out of thin air], and then the banks are GUARANTEED that these Treasury bonds would be excluded from their SLR ratio! This would 1) remove these bonds from being reported on the Federal Reserves balance sheet directly, and 2) the effects of this quasi-money printing effects would stay within the banking system, and would be masquerated from the Fed! The Federal Reserves reverse repo window (where they had previously purchased underwater Treasury bonds at par) would become irrelevant, which is exactly why they let the BTFP (Bank Term Funding Program) expire on March 11, because they've already been preparing the banks to be able to enact their own QE infinity! And, they've convinced the marketplace over the last 1 year that they will bail out any too big to fail bank, and have lulled depositors into a sense of complacency!! 😳👀
@familyman20181
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