In 1992, decide Giovanni Falcone was killed by the Sicilian mafia.

Falcone and his colleague Borsellino had been at forefront of main investigations that uncovered a lot of the mafia’s enterprise and led to the incarceration of many criminals.

His technique was fairly easy: observe the cash, discover the mafia. The identical methodology could be very helpful in understanding the true extent of at present’s banking stress, which is essential for macro and markets going ahead.

Observe the cash, assess the banking stress.

That’s why in at present’s piece we are going to sthe way you the best way to ‘’observe the cash’’, explaining which reviews to concentrate on and the best way to analyze them week by week to evaluate the depth of the banking stress.

Let’s observe the cash collectively.

If banks are underneath stress from deposit outflows, they positive might be tapping the out there liquidity amenities.

So, have they? And by how a lot?

Earlier than we reply this query let’s first outline which liquidity amenities can be found to US banks – they differ in situations, eligible collateral, mortgage tenors and so on.

1. The Low cost Window (Fed): very large set of collateral accepted (not restricted to Treasuries and MBS, but additionally some loans) at market worth, max 90 days time period lending at high of Fed Funds vary (5% now); it comes with a powerful stigma from the GFC.
2. BTFP (Fed): newly created Fed facility that accepts Treasuries and MBS with none liquidity or market haircuts (!) and lends for as much as 1-year at 1y OIS (~Fed Funds) + 10 bps (4.75% now);
3. FHLB Advances (not Fed): the Federal Residence Mortgage Banks program that enables member banks to submit collateral with haircuts (UST, MBS and a few mortgage loans) and at market worth to get funding (‘’advances’’). Funding length is versatile, however FHLB advances are comparatively costlier.

Here’s a very helpful desk from JP Morgan summarizing the three amenities:

So, let’s now observe the cash – did banks use these amenities, and by how a lot?

The Fed’s H.4.1 report is launched each week (right here) and it informs us on the Low cost Window and the BTFP.

Banks drew $160 bn from these amenities within the SVB debacle week, and web zero (!) the week after.

We additionally know that First Republic Financial institution (NYSE:) drew about $110 bn from the Low cost Window, which suggests all different US banks solely drew $50 bn from the mixed Fed facilities 2 weeks after the stress began.

Not a lot, actually.

However possibly banks used the third possibility – FHLB Advances extra aggressively?

FHLB disbursed loans to business banks are solely reported quarterly, however you possibly can observe the sum of money FHLB is elevating by bond issuance right here – even when not totally distributed, it provides us an concept in regards to the potential incoming demand FHLB expects.

Now, stand prepared for the quantity. The FHLB has raised as a lot as $300 billion within the final 7-10 days, largely outpacing its regular issuance tempo.

An enormous determine.

So, are US banks really experiencing extreme stress in spite of everything?

Inform me what you assume within the feedback.

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