Fed Discount Window Weekly Update
This week’s Primary Credit activity at the Fed’s Discount Window:
This week’s primary credit balance was $1.6 billion, up from $1.5 billion a week ago.
Treasury yields are key: It is important to watch Treasury yields over the next year. Yields remain elevated. As a result, banks that gorged on Government-issued paper when rates were low (2020-1H 2022) such as Bank of America ( BAC 0.00%↑ ) carry significant unrealized losses. These unrealized losses are a liquidity risk for banks that carry them.
The Fed’s primary mandate is to bailout banks and to subsidize fiscal policy. I believe the Fed is lowering its Fed Funds rate to both reduce the short-term cost of financing the Federal Government (i.e. T-Bills are the preferred debt instrument) and to bail out banks that carry large unrealized loss positions, namely Bank of America, which carried $89 billion of unrealized losses as of September 30th 2024.
Bank of America CEO Brian Moynihan ought to be fired. The Fed’s back door bailouts (2023’s BTFP and now lowering the Fed Funds rate), ought to result in Brian Moynihan losing his CEO job as we previously wrote HERE and HERE and elsewhere.
