Fed Excess Reserve Cumulative Deficiency Hits Record

Tyler Durden's picture

Today, instead of the traditional, and sometimes boring, weekly balance sheet format (no surprises: another week, another record) we want to focus on one particular aspect of the Fed's balance sheet: namely the unprecedented differential between bank excess reserves and Fed asset purchases since the start of the latest round of quantitative easing (since the launch of QE Lite in August 2010). Since this cumulative number has now hit $170 billion, it can no longer be qualified as pocket change, even by the Chairman's standards.

First, below is a weekly presentation of the change in the key merkatble assets since QE Lite. To the negative we have the paydown in MBS and Agencies, offset by Treasury purchases on the positive side.

As the black line demonstrates, marketable Fed assets have increased by just under $200 billion, with the $361 billion in Treasury purchases being offset by $168 billion in mortgage related paydowns. Yet while in theory the increase in assets should match the change in bank excess reserves, this is surprisingly not the case, not by a lonch shot. The next chart show the huge differential between the two:

The highlighted bar demonstrates just how large the different has become (as a reference, the Fed's most recent excess reserves were $1.08 trillion). On the other hand, with the SFP unwind, the offset should be a dollar for dollar increase in excess reserves. So if in the coming weeks if we do not see a surge in excess reserves that means that banks are actively using capital not to lend (see G.19) but to speculate in stocks, and as Zero Hedge predicted the money from the SFP program, all $195 may end up being used to purchase GM and other worthless stock.

Also for purists, here is the most recent complete Fed balance sheet...

And also the relative holdings of the Fed compared to those of the other five biggest institutional holders. China is becoming an increasingly irrelevant player in the global game theory of international leverage.