Fed (Reserve) balance sheet liabilities hit record $2.2 trln

[UpInArms]

Source: Reuters

NEW YORK, Dec 11 (Reuters) - Lifelines to banks, dealers and insurers and props to short-term funding markets have swelled the Federal Reserve's balance sheet liabilities to a record above $2.2 trillion in the latest week.

The data underscore the exposure of the Fed, the U.S. central bank, to the financial system amid the biggest global credit crisis in 80 years and banks' near-total dependency on the lender of last resort.

Total liabilities on the Fed's balance sheet rose to $2.245 trillion on Wednesday Dec. 10, from $2.121 trillion on Dec. 3, Federal Reserve data showed.

Over the long term, ballooning U.S. government support to the financial system and unprecedented Treasury debt issuance may send government securities yields spiking, market analysts warn.

"It's a question of timing when you start trading on the Fed expanding their balance sheet (and) put on some kind of medium-term sell bet on Treasuries," said Josh Stiles, bond strategist and managing director with IDEAglobal in New York.

Banks' overall borrowings averaged $240.59 billion per day in the week ended Dec. 10, down from an average $255.57 billion per day the week before.

Read more: http://www.reuters.com/article/bondsNews/idUSN1127300220081211

---

background:

Federal Reserve System

The first institution with responsibilities of a central bank in the U.S. was the First Bank of the United States, chartered in 1791 by Alexander Hamilton. Its charter was not renewed in 1811. In 1816, the Second Bank of the United States was chartered; its charter was not renewed in 1836, after it became the object of a major attack by president Andrew Jackson. From 1837 to 1862, in the Free Banking Era there was no formal central bank. From 1862 to 1913, a system of national banks was instituted by the 1863 National Banking Act. A series of bank panics, in 1873, 1893, and 1907 provided strong demand for the creation of a centralized banking system.

The timeline of central banking in the United States is as follows:

1791-1811: First Bank of the United States
1811-1816: no central bank
1816-1836: Second Bank of the United States
1837-1862: Free Bank Era
1863-1913: National Banks
1913-Present: Federal Reserve System

[Doctor Cynic]

1. All hail the Printing Press!

[SpiralHawk]

2. "Chalk up another one for me." - Commander AWOL

[Phred42]

3. They are going to max out the Credit Cards before they go

Can you say Hyper Inflation?

[HamdenRice]

4. There's just one problem: This makes almost no sense, ie another economically illiterate journalist

I realize this is counter-intuitive, but for banks, liabilities are not what they are for other corporations.

We think of money in the bank as an asset to us. But to the bank, that money is a liability (ie it is owed to the depositor).

We think of loans we take out as liabilities to us. But to the bank, that loan is an asset.

As the bank that issues currency, the Fed's liabilities also include all the money issued. A last category of Fed liabilities is Fed borrowing from other banks and through the issuance of securities (something I thought they had proposed but not carried out yet).

Who deposits into the Fed?

Commercial banks are required to deposit money in the Fed. (That is, the Fed is the banks' bank) Also the US Treasury deposits money in the Fed.

So an increase in liabilities of the Fed could be because banks aren't lending and are depositing more of their money in the Fed. It could also mean that with the Treasury paying zero yield on t-bills, and therefore issuing them as fast as possible to fund the recovery, that Treasury deposits in the Fed have increased.

When the Fed buys troubled assets or makes loans to banks, those are not liabilities; those are assets. So the bailout does not appear as liabilities on the Fed's balance sheet, but as assets.

So the sentence, "Lifelines to banks, dealers and insurers and props to short-term funding markets have swelled the Federal Reserve's balance sheet liabilities" makes no sense. The OP reporting seems to suggest that bailout loans are liabilities to the Fed. They aren't. They're assets.

The thing that would be worrying about Fed liabilities increasing would be if the Fed is borrowing to fund the bailouts or the purchase of commercial paper. That may be possible. That would mean that these assets are offset by a similar increase in liabilities.

But that isn't made clear in the OP article.

[ohio2007]

5. Fed Refuses to Disclose Recipients of $2 Trillion (Update2)

Dec. 12 (Bloomberg) -- The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.

The Fed stepped into a rescue role that was the original purpose of the Treasury’s $700 billion Troubled Asset Relief Program. The central bank loans don’t have the oversight safeguards that Congress imposed upon the TARP.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.

The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The Bloomberg lawsuit, filed in New York, doesn’t seek money damages.

‘Right to Know’

“There has to be something they can tell the public because we have a right to know what they are doing,” said Lucy Dalglish, executive director of the Arlington, Virginia-based Reporters Committee for Freedom of the Press.

“It would really be a shame if we have to find this out 10 years from now after some really nasty class-action suit and our financial system has completely collapsed,” she said.

“This is uncharted territory,” said Levine during an interview from his New York office. “The Freedom of Information Act wasn’t built to anticipate this situation and that’s evident from the way the Fed tried to shoehorn their argument into the trade-secrets exemption.”

The Fed lent cash and government bonds to banks that handed over collateral including stocks and subprime and structured securities such as collateralized debt obligations, according to the Fed Web site.

Borrowers include the now-bankrupt Lehman Brothers Holdings Inc., Citigroup and New York-based JPMorgan Chase & Co., the country’s biggest bank by assets.

Banks oppose any release of information because that might signal weakness and spur short-selling or a run by depositors, Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, a Washington trade group, said in an interview last month.

‘Complete Truth’

“Americans don’t want to get blindsided anymore,” Mendez said in an interview. “They don’t want it sugarcoated or whitewashed. They want the complete truth. The truth is we can’t take all the pain right now.”

The Bloomberg lawsuit said the collateral lists “are central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression.”

In response, the Fed argued that the trade-secret exemption could be expanded to include potential harm to any of the central bank’s customers, said Bruce Johnson, a lawyer at Davis Wright Tremaine LLP in Seattle. That expansion is not contained in the freedom-of-information law, Johnson said. “I understand where they are coming from bureaucratically, but that means it’s all the more necessary for taxpayers to know what exactly is going on because of all the money that is being hurled at the banking system,” Johnson said

http://www.bloomberg.com/apps/news?pid=20601109&sid=apx7XNLnZZlc&refer=home