The Institutional Risk Analyst

Q: Do you suppose the folks inside the Trump White House, who spend much of the day watching Newsmax, understand that loan forbearance is about to end for tens of thousands of American households on October 1st?

Paying interest on reserves has nothing to do with whether banks lend and everything to do with enabling the Fed to manage the Treasury market. If you don’t want the Treasury market to remain open, then take away the Fed’s power to pay interest on reserves.  

The leading candidate to be the next Fed Chairman believes the balance sheet could safely shrink to around $5.8 trillion, with bank reserves potentially decreasing to $2.7 trillion. Waller argues that a shift towards more short-term Treasury bills would make the balance sheet safer and more flexible, and he is absolutely right.

Imagine if the Fed had to tell the public that federal deficits were bad for bank safety and soundness? We haven't had a Fed chairman since Arthur Burns who would speak publicly about the inflationary aspect of federal deficits.

The connection between expanding the balance sheet via open market purchases of Treasury debt and bank reserves is one of the starkest illustrations of how federal budget deficits translate directly into inflation.

When Ray Dalio says to be afraid of the bond market, he is asking a question that belongs in the mid-1970s, when the dollar still competed with other currencies and US interest rates were actually affected by interest rates in other nations. But today, with many of the other industrial nations led by Japan, China and the EU literally drowning in public debt, the US is still the leader of the parade.

When you buy a crypto currency, you buy an option on finding a greater fool, but nothing more, a transaction that would have provoked contempt in Lincoln’s day.

The Fed's actions in 2008 and again in March 2020 were largely driven by the sole mandate of the central bank -- to keep the Treasury market opening and functioning.

When President Donald Trump says the Fed should cut interest rates, he is probably right – at least speaking from the perspective of the real estate markets.

Some of the smaller holders of MSRs may ask themselves if selling right now is not the best strategy over a 36-48 month horizon. 

The paper money economy created by President Franklin Delano Roosevelt in 1933 trapped Americans and the world into using fiat dollars.

US history over the past century was largely written by liberal Democrats, who at least rhetorically opposed tariffs and embraced inflation

Even as President Donald Trump demands rate cuts, the Powell FOMC is sharply reducing US economic growth estimates

If we told you that the Trump White House was planning to end the issuance of all agency MBS, how do you think this will impact financials?

When you see a bank with more than 10% of total assets in MBS, that's a big red flag in our book.

But what happens if the US simply picks up the proverbial football and goes home?

Industry results in 2024 were reasonably good, but the banking industry is still 200 bp below 2019 levels of asset and equity returns

Kevin Hasset is now effectively Powell’s boss on everything other than monetary policy.

Banks continue to show a strong preference for late vintage loans over securities, a fact which may cause loan yields to continue falling

In the strange world of Washington, speaking truth in public is a capital crime. Truth is often revealed accidentally.