On the failure of SVB and Fed’s BTFP credit facility…
March 27, 2023

Bank: Hey! Fed, help us!!!

Fed: Yo, what’s up?

Bank: We need some cash, quick!

Fed: Hey, calm the fck down… What’s the problem?

Bank: You told us in 2021 rates will be zero until like forever! So we loaded up on some crap mortgage bonds that pay peanuts.

Fed: Lol!

Bank: Don’t fcking lol us! You hiked rates by 5% – all of our bond portfolio is deep underwater. Nobody wants that crap paying 1%!

Fed: So what?! Don’t stress out! They’ll payout… eventually. You even booked them as Held-To-Maturity bonds, just sit tight, you’ll be fine…

Bank: Sit tight? Sit tight! Wake up, man! The party is over. Your VC friends are bleeding cash like never before. You’ve choked them, man.

Fed: So what? Who cares! They don’t pose a systemic risk…

Bank: THEY DON’T, BUT I DO! We’re a business bank, for fcks sake! And there’s no more funds coming in. Those VC-funded firms got no revenue – they just pay vendors and payroll. We’ve lost more deposits in the last month than ever before. Where the hell am I supposed to get the money to pay for that?

Fed: Dunno, maybe a capital raise? You tried that?

Bank: ????

Fed: ????

Bank: Did you not read the news today? We did, but it just spooked everyone! Now Peter Thiel told their founders to get out! Our stock is down like 60% today!

Fed: Oh boy… Alright, then yeah, go for it – sell your bonds.

Bank: Did you not hear me when I said they’re deep underwater?! If we sell them, we’re finished.

Fed: Then sell your interest rate swaps too! You did hedge your bonds, right? Right?!

Bank: FCK YOU! You said rates will be zero!!!


Bank: You just raised them too quick! There was not enough time…

Fed: TOO QUICK!? WE RAN ASSET PURCHASES FOR ANOTHER 5 MONTHS! We printed more money amid the highest inflation in 40 years specifically so that banks like you have enough time to get their sh*t together and dump that low-yielding crap! What the hell do you want me to do now?

Bank: Buy these bonds from us.

Fed: NO! You crazy? We’re not buying them! That’s more QE!

Bank: Why the hell not? You’ve been doing that for the last 15 years! A few more billion on your balance sheet, no one’s even gonna notice…

Fed: Seriously, do I look like a clown? We’re not restarting QE!

Bank: Come on!

Fed: We promised we gonna reduce our balance sheet and that’s what we’re doing. You want me to ditch that promise just because some random bank ran their risk up to their tits? How’s that gonna make us look?

Bank: Won’t be the first time!

Fed: Get out!

Bank: Look, if we go down, we’re bringing the rest of the banking sector with us and before you know it, you’ve got a financial solvency crisis on your hands that people gonna blame you for. No one’s gonna remember that we didn’t hedge, but they will remember that Fed raised rates and stood by, as the economy collapsed. You don’t want that, do you?

Fed: Alright, enough already! We can’t do QE!

Bank: Then do something else!

Fed: Ok, I tell you what. How about we don’t *buy* these bonds, but we *borrow* them? Since we’re not buying them – it’s not QE! Just a bit of a liquidity injection. How about that, huh?

Bank: Fck it, call it whatever you want. But I need a good price for those.

Fed: Oh, I think I can do better than that. How about we borrow them at par.

Bank: At par?!

Fed: At par.

Bank: Yours! Sold!… Sorry, I meant… here’s your collateral.

Fed: How many have you got?

Bank: Not much – 400 yards.

Fed: $400 billion! Damn, this will really jack up my balance sheet. Alright, f*ck it. Let’s hope no one notices…

This entry was posted in : March