US Banks Have $1.4T In Excess Reserves Yet Need Daily "Emergency" Fed Actions

With $1.4 trillion in excess reserves, how can there be a problem with overnight funding?

Emergency Funding Continues

The Fed continued emergency repos today as firms are short of cash.

1/ U.S. banks have $1.4Tn in *excess reserves, yet liquidity problems that more QE won't fix. After years of Fed-driven speculation & debt issuance, the banking regs (LCR) created to avoid another crises now pinch at the first sign of unusual withdrawals. h/t @wesbury @LukeGromen pic.twitter.com/E4K8r0w6tq

— John P. Hussman (@hussmanjp) September 20, 2019

2/ Total reserves and excess reserves as a fraction of total bank assets. Compare these to pre-crisis history. To imagine that recent repo spikes reflect some inadequacy of reserves or the need for more QE is to misunderstand the nature of the constraint. pic.twitter.com/KsxsUPusgb

— John P. Hussman (@hussmanjp) September 20, 2019

Fed Tackles End-of-Quarter Funding Angst by Extending Repo Plan

Bloomberg reports Fed Tackles End-of-Quarter Funding Angst by Extending Repo Plan

The New York Fed said it will conduct overnight repurchase agreement operations daily Monday through Friday until Oct. 10. The Sept. 23 operation will be for as much as $75 billion, while the actions thereafter will be for at least that amount. Separately, it will also conduct three 14-day term operations for an aggregate amount of at least $30 billion on Sept. 24, Sept. 26 and sept. 27, according to a statement.

“The Fed just reminded the market that they have complete control over the front-end if and when they want it,” said BMO Capital Markets strategist Jon Hill. “Given the volatility we saw this week, they want to ensure quarter-end goes as smoothly as possible.”

Complete Control?

That the Fed has to do these operations is a guaranteed sign that things are not under control.

Bad Optics

The NY Fed pumped another $75 billion into the system on Wednesday and then again on Thursday. "It's very bad optics to have to come in with emergency anything day in and day out," said Danielle DiMartino Booth, CEO of Quill Intelligence @QuillIntel —https://t.co/J37xyHdyS9

— Danielle DiMartino (@DiMartinoBooth) September 20, 2019

"It's very bad optics to have to come in with emergency anything day in and day out," said Danielle DiMartino Booth, CEO of Quill Intelligence.

Understanding the Issue

So the banks are calling for the Fed to add permanent reserves to solve the funding pressures. How about if the banks stop buybacks and sell some shares back to the market and raise capital.

— Michael Lebowitz, CFA (@michaellebowitz) September 20, 2019

Overnight Lending?

We are clearly not talking about "overnight lending".

A crisis has been going on for days.

Beneath the crisis is my observation that companies are using overnight repos, continually, to fund normal operations. Parties no longer trust the collateral.

It took a mid-month crisis to flush this out.

The Fed's alleged solution is to give companies at least $30 billion "14-day" lending, repeated of course, indefinitely. This is on top of at least $75 billion daily.

Excess Leverage

I smell an excess leverage, borrow-short, lend-long scheme of some sort that has seriously gone awry.

Anyone else come to that conclusion?