Arthur Hayes: Without Fed support, banks may face bankruptcy due to bond sell-off
On January 26th, BitMEX co-founder Arthur Hayes compared the different impacts of the bank funding tools "Buyout Default" (BTFP) and "Discount Window" (DW). Under the BTFP mechanism, banks can use $80 worth of bonds as collateral to obtain a $100 loan from the Federal Reserve Bank. However, in the Discount Window operation, $80 worth of bonds can only be exchanged for an $80 loan.
Hayes pointed out that if the Federal Reserve does not take measures to reduce quantitative tightening or cut interest rates at the March FOMC meeting, there may be a massive sell-off in the bond market, which could exacerbate the losses of banks holding securities held to maturity (HTM) on their balance sheets. This will cause depositors to turn to money market funds (MMFs) for higher interest rates, putting pressure on banks to repay depositor funds. In this case, without the support of the BTFP mechanism, banks can only rely on the Discount Window (DW) to obtain loans at market value, which decreases as bond prices fall, ultimately leading to bankruptcy for banks unable to make up for unrealized losses.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
You may also like
Elon Musk Sends Bitcoin (BTC) to Janet Yellen!
Tesla CEO Elon Musk made a reference to US Treasury Secretary Janet Yellen regarding Bitcoin.
BREAKING: SEC Attacks Cryptocurrency World Again Before Handing Over Administration
MAGA memecoins rally as crypto traders bet on Trump’s return to the White House
Trump-themed memecoin MAGA has a $152 million market cap, rising 25% over the past seven days and 107% over the past month.The overall PolitiFi market cap is $986 million, a 5.2% change in the last 24 hours according to CoinGecko.
The Daily: Trump plans executive order to make crypto a 'national priority,' XRP market cap approaches $200 billion and more
U.S. President-elect Donald Trump plans to issue an executive order making crypto a “national policy priority” after his inauguration on Monday, Bloomberg reported, citing sources familiar with the matter.XRP derivatives activity is surging, with a sharp rise in call options as its price and futures open interest hovers around all-time highs.Ethereum developers aim to launch the Pectra mainnet upgrade in March, providing hard forks on its Sepolia and Holesky test networks go as planned in February.The foll