Huatai Macro: The Federal Reserve BTFP continues to rise in response to the loss of deposits

Source: Huatai Securities Macro Research

core point of view

Weekly direct hit on the balance sheet trends of the central banks of the United States, Europe and Japan

After the bankruptcy of Silicon Valley Bank on March 8, the Fed expanded its balance sheet by US$391.5 billion for two consecutive weeks, and then its total assets fell for nine consecutive weeks. This week, the regional bank index remained low and fluctuated; from May 3rd to May 10th, the deposits of small and medium-sized banks in the United States continued to lose; the BTFP loans applied by banks rose further in the past week, highlighting the fragility of the US banking system. This week, the U.S. Q1 PCE inflation quarter-to-quarter growth rate was revised up to 5% faster than expected. Many Fed officials expressed their hawkish attitudes, while the minutes of the Fed meeting showed that there were still differences within the Fed on whether to stop raising interest rates, which caused the market to Rate hike expectations and yields are on the rise again. In addition, although the U.S. fiscal deposits (TGA) continue to drop to a low level, the two parties are close to reaching an agreement on the debt ceiling issue, and the risk of U.S. debt default has eased. We will continue to update investors on the changes in the balance sheet of the G3 central bank reserves for the first time every Friday-this may be the earliest forward-looking indicator to detect pressure points and changes in the pressure value of the financial system, as well as observe policy changes. At the same time, it also has important guiding significance for the detection of inflation, interest rates, and market liquidity.

1. Overview of this week

From May 17th to May 24th, the total assets of the Federal Reserve fell for the ninth consecutive week (-20.5 billion US dollars), mainly due to the reduction of other (bridge to FDIC) loans. Since the Silicon Valley Bank incident, the Federal Reserve has expanded its balance sheet by a total of US$94 billion, of which bank loans have expanded by US$281.7 billion, but the Fed has reduced its holdings of securities assets by US$180.6 billion. In the latest week, the total assets of the Federal Reserve fell, the total assets of the European and Japanese central banks rebounded slightly, and the total assets of the G3 central banks fell. This week’s observations : 1) The scale of discount window and other (bridge) loans has declined for two consecutive weeks, but BTFP loans continue to rise; 2) The Federal Reserve continues to shrink its balance sheet, and the scale of Treasury bonds and MBS continues to decline; 3) US government deposits (TGA) continue to consume.

2. Brief analysis of changes in G3 central bank balance sheets

The total assets of the Federal Reserve (May 17-May 24) fell by US$20.5 billion, mainly due to the reduction in the size of other (bridge to FDIC) loans, while BTFP loans rebounded slightly.

1. On the asset side, total assets decreased by 20.5 billion (-46.3 billion in the previous week). Among them, national debt and MBS decreased by 3.7 billion (-29.9 billion in the previous week). The overall decline in domestic bank loans was 16 billion, of which discount window loans fell by 4.9 billion, and other (to FDIC bridge) loans decreased by 16 billion, but BTFP (within 1 year) increased by 4.9 billion.

2. On the liability side, reverse repos increased by RMB 12.4 billion (the previous week -19.6 billion); government deposits (TGA) decreased by 18.9 billion (the previous week -86.5 billion); other deposits decreased by 9.8 billion (the previous week +58.4 billion).

3. The net liquidity index continued to fall (net liquidity = total assets – fiscal deposits – reverse repurchase, representing funds flowing into the financial system), net liquidity decreased by 14 billion, and rose by 59.8 billion in the previous week (weekly average in 2022 – 200 100 million).

Total assets of the ECB (May 12-May 19) rose by 1.6 billion euros (+11.6 billion euros last week) . Since the events of Silicon Valley Bank and Credit Suisse, the overall European banking system has been relatively stable, but the follow-up is still worthy of attention.

1. On the asset side, the total assets of the European Central Bank increased by 1.6 billion; loans to banks in the euro area increased by 1.2 billion; securities assets decreased by 4.6 billion; other assets increased by 5 billion.

2. On the liability side, liabilities to banks decreased by RMB 20.6 billion; liabilities to non-banks increased by RMB 21.5 billion; other liabilities increased by RMB 0.7 billion.

From May 10th to 20th, the assets of the Bank of Japan expanded by 3.2 trillion yen; from May 20th to 25th, the scale of the Bank of Japan’s purchase of government bonds was 1.8 trillion yen, which was at a low level. On May 25, the Japanese 10-year government bond rate was 0.441%, down from 0.529% on March 8.

Risk warning: small and medium-sized banks in the United States have reappeared in the run; the probability of recession in Europe and the United States has increased.

Source: Selected Securities Firm Research Report