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.

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buzzsaw99's picture

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...

zirp 4evah bitchez! btfd! it only ever goes up! that is all.

BORT's picture

30 year prints 4.666 yield in WSJ today.  Omen?

CU1981's picture

Thanks TD for all you do and have done. Heart felt.

Where would we all be without ZH ? Seriously.

I plan on making a donation to the cause. Keep up the good fight brother !!

berlinjames02's picture


I've been following the excess reserve and BS data too. Since February 2010 ~$220 billion in excess reserves has left the banks. (I started my 'cumulative change in excess reserves' data series in 2007.) Likewise, QE1 was winding down to stagnate around the same time, so the cumulative difference would be about $50 billion more (an eyeball guesstimate) if you back your time series up to 2/1/10.

I'm not saying you need to do it. Just wanted to comment that the cum dif would be about 30% more if you do.

Where has all that money gone? There isn't any inflation in CPI (headline or core). LOL

berlinjames02's picture

One more thing... I'm going to start tracking down and punching FOMC members in the face. I'm sick of the 'Good Cop, Bad cop' bullshit where Hoenig or Fisher are the good cop, while the Beard and 2-Beard (Yellen, I'll let you decide where the 2nd beard is) are the bad cops. Well, we really don't want to pursue infinite QE but how 'bout another trillion?


Poor Grogman's picture

Trying to convince people that an endless supply of free money is a bad thing, is one of the hardest things we have to deal with.

It rates just behind dealing with the consequences of same.

unununium's picture

The ECB refers you to its cartoon telling you why inflation is bad.  Don't be fooled by your wages going up.

Everything else going up?  That's "recovery".

AUD's picture

But speculating in stocks is lending - to the companies that issue the stocks.

Also, can you explain why lending ex stocks would not draw down bank excess reserves? Deposits with the central bank form only a part of a banks 'assets'.

bobert's picture

Sorry for being a ditz, but could some one provide the definition for "SFP?"

ZH I understand the need for abbreviating, however, isn't it best to spell out the full definition followed by abbreviations?

If I'm the only one so ignorant to be effected by this I will understand if I'm ignored.


bobert's picture

Thank you kindly for the definition and the link!

Now, I think I'm going to go throw up.

This creative financing by the federal resrerve, the US treasury, and congress is very difficult for a senior economist schooled in tradition to handle. I guess a self protective filter got installed in my brain somewhere around 2008 and SFP wasn't allowed into my thinking.

And, I think I prefer to keep it that way.

JohnG's picture

Supplementary Financing Program in which the Treasury would sell securities directly to the public but simply keep the funds in an account with the Fed. The payments by the public for these securities then initiate a flow of reserves out of private banks, the same as if the Fed itself had sold Treasuries to the public out of its own holdings, so the SFP enables the Fed to sterilize a greater volume of loans than it could if it had to rely solely on its original holdings of Treasury securities. The Treasury supplementary account as of last week has provided the Fed with an additional $559 billion to play with. It appears from the latest balance sheet that the Fed has now asked the Treasury to do the same sort of thing with the Treasury's "general account" with the Fed. Historically, that account was just used to facilitate daily Treasury transactions, and was usually held to about $5 billion. Last week, it's up to $56 billion.

bobert's picture

Thank you also, and now I go throw up again.

prophet's picture

Manage the Chinese ascendancy: the primary objective.

prophet's picture

TD:  If you were to testify before the U.S. congress what would be your prepared statement?



Zeilschip's picture

10-year UST yield is nearing major support level at 3.60... if it breaks we could go to 4+ very quickly (bad scenario 1) or it bounces back sharply (bad scenario 2, because it probably means the SHTF in the Middel-East). Should be fun trading coming few days!!!

stewie's picture

China is becoming an increasingly irrelevant player in the global game theory of international leverage.


Please explain how the Fed holding more of it's own debt than China makes China irrelevant?  Is it because the Fed can monetize it all in the blink of an eye?  Still this statement doesn't makes sense to me.  The US has the privilege of issuing the world reserve currency, that means other countries must hold it as reserve!    

lsbumblebee's picture

Noticeable lip quiver at 0:49, 1:00 and 1:29. Definite twitching of the nasalis muscle at 3:15 with spasms of the mentalis and erratic wave patterns of the epicranius.

Results: Visual polygraph confirms subject is lying his ass off.


mberry8870's picture

Am I reading chart two correctly. The purchase of treasuries in 10 times the increase in reserves? And is that supported by the last chart? If so WTF!!

davepowers's picture

The 'gap' is filled, as during 2010, by the FED's borrowing the proceeds of the US Treasury Supplemental Financing Program.

Interestingly, the FED liability under SFP was not drawn down during the week ending Feb. 2. Perhaps it will do so in weeks to come. If not, where will the Treasury raise the funds to pay off the winding down of their side of the SFP?

Instead, the FED covered the very roughly $20bn of asset expansion for the latest week (due to US Treasury note/bond purchases aka QE 2) by a combination of actual printing currency (roughly $6 bn), reverse repo agreements with foreign banks, and expansion of the Treasury's general account at the FED.