Website review: The Automatic Earth: What the FED a...
laodan discovered this in Economics
•1 reviews since Feb 6, 2008
finance
•theautomaticearth.blogspot.com/2008/02/look-a...
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laodan discovered 3 months ago- What the FED accepts as collateral these days. in The Automatic Earth by Ilargi
The premise is this: The Fed loans money to banks, through the discount window, and through its Term Auction Facilities (TAF's). Two weeks ago we reported that banks' non-borrowed reserves had gone negative, and by now some people are starting to wonder what the Fed deems acceptable as collateral for all those loans. The answer looks somewhat surprising. ... Basically they will take anything, ... One can see from the tables (info straight from the FED) that the collateral requirements are extremely liberal and even consider prior value. For example, with a liquid CDO, the Fed will lend up to 98% if it's a short-term CDO, up to 96% if it's medium-term, and up to 93% if it's long-term. If the CDO lacks liquidity in the market, the Fed will still accept it and lend up to 85% of its par value. They will even take AAA-rated subprime-backed CDO (junk wrapped by the monolines) and subprime creditcard account receivables. What the FED accepts as collateral these days. A look at FED Collateral Requirements Discussion on Fed collateral requirements This post is a follow-up of: Are US banks being nationalized? Twelve stages of present systemic financial meltdown If the FED issues loans to banks against such "loser" guarantees it must be that the situation is really desperate. And if it is one would expect that the FED (that knows better than all of us) is preparing for mass bank runs. That seems exactly what it is doing: FDIC document named "Processing Deposit Accounts in a Bank Failure". Advisory Committee on Banking Policy, Minutes of Meeting, This last document spells out that in case of bank failures, the Federal Housing Loan Banks are first in line for what is left of a bankrupt bank's assets. Only after that, the depositors might be able to claim their money. Hum... by then the smartest rats will have left the ship and be waiting in the shadows to take over existing assets for 10 cents on the dollar or even less. Wow how cruel a game! But this is reality baby or is it the nature of reality?
- What the FED accepts as collateral these days. in The Automatic Earth by Ilargi
