Heresy Financial: The Fed’s Secret, Ongoing Bank Bailout that Just Keeps Growing
Big bank earnings have come in over the past week. And the overall results have been lackluster. Most banks are raising their loan loss reserves, and taking other cautious measures.
That has hit profitability in the short-term. But it also indicates that the banks see some dangers ahead. That’s in line with a sector still reeling from last year’s sizeable bank failures. While that appears contained, it may not be the case.
When Silicon Valley Bank and others failed last March, the Federal Reserve sprang into action. They created a short-term lending facility. Banks could swap out long-term assets for short-term ones.
That facility is known as the bank term funding program. It came with a one-year time limit. That deadline is coming up in March.
This facility has helped stem the possibility of further bank runs. And banks having to sell long-term assets at a temporary loss to meet capital demands. But the program continues to grow.
That’s a sign that the Fed’s “higher for longer” approach to interest rates has left banks vulnerable. And it’s likely that, to avoid a crisis, the term funding program will be extended for another year, if not indefinitely.
Should the program end, however, it’s possible that banks, particularly regional ones, could be in for some higher stress in the months ahead. Investors may want to cash out. And traders may want to buy put options if that’s the case.