The Fed's Broken Piping In One Chart: JPM "Purchasing Dry Powder" Rises To All Time High $550 Billlion

Tyler Durden's picture

One of the less followed data series in JPM's quarterly report is the amount of deposits and loans on the bank's balance sheet. The reason for this is because as those who recall the CIO fiasco, the bank's excess deposits over loans is precisely the dry powder the bank uses as collateral to fund risk trades that do not require actual capital allocation but merely an initial (and maintenance) margin. And it was precisely the nearly $423 billion in "excess deposits" as of June 30, 2012, that led the London office of the CIO to put on the massive risk bets in IG9 and various other non-hedging trades, that led to the $6+ billion loss, and to the current series of unprecedented legal claims against the bank. So what is JPM's prop trading capacity as of September 30?

As of the most recent data, which saw JPM's deposit holdings surge by the most ever (except of course for the inorganic "acquisition" of WaMu in Q3 2008) or $78 billion in just one quarter, while loans continued to be flat, we now knows that JPM had marginable power to chase risk higher to the tune of $552 billion, an all time record in excess deposits over loans!

What is more troubling in the chart above is that loans are virtually unchanged for five years now, with the total notional in loans outstanding (blue line) at $729 lower than it was in the quarter when Lehman filed when it hit a record $761 billion and has not been surpassed yet. This, as frequent readers know, is our definition of "all that is broken with the US banking system", because due to QE, whose reserves end up on JPM's balance sheet as deposits, the bank is then incentivized to gamble with this prop trading dry powder instead of lending the money out as loans, whether mortgage, consumer or any other kind: this is money that never enters broad circulation and which will never boost money velocity and thus generate the Fed's much needed inflation (instead merely inflating asset prices to all time highs quarter after quarter). Never, that is, until the Fed finally steps away from QE and banks are forced to reallocate this margined cash into productive investments (when rates rise from 0%), which then and only then, will finally lead to the much delayed inflationary spike.

Paradoxically, as long as QE continues, banks remain resolved to never lend out any money as can be conclusively seen on the chart above. And since there are still those who don't understand the reserve-to-deposits pathway, here - as shown yesterday - is the IMF's Manmohan Singh with the simplest explanation we have encountered to date:

When central banks buy securities, one of the immediate effects is to increase bank deposits, which adds to M2 (in the U.S., practically the Fed has bought from nonbanks, not banks). Whether banks maintain those added deposits as deposits, or convert them into other liabilities (or, by calling in loans, reducing or moderating the growth of their balance sheets), is an open question.

Curiously, despite possessing a record $550 billion in repoed "purchasing power", the CIO unit has been strangely mute in the past few quarters, generating -$232MM in revenue in the past quarter, and losing money for three of the last four, shown on the chart below where the Q2 London Whale loss sticks out like a sore thumb.

So if not trying to corner the IG9 market this time, perhaps Jamie Dimon can elaborate just which marginable and highly leveraged securities he now has on his books courtesy of the $550 billion in freely allocatable collateral courtesy of none other than the Federal Reserve.

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Looney's picture

Friday Humorhoids! With Yellen at the helm, the "Dry Powder" will triple in no time ;-)


SafelyGraze's picture

once we accept that gambling = lending, then we can be at peace


and once we accept that receipts for gaming chips are actually money, then we can participate in the real economy

-missus greenspan

Pladizow's picture

If you went home today and found the main line had burst and had filled your house with sewage all the way to the ceiling - would you raise the ceiling or remove the shit?!?!?!

akak's picture

If your livelihood depended on force-feeding the public shit, as is the case with certain denizens of the District of Corruption, you would look upon such a situation as manna from heaven --- or, well, possibly from the other place, the interests of its master being much more aligned with said DC denizens.

Crash Overide's picture











RESPONSE: *Insert Cricket noise here* no offense to crickets 


Bananamerican's picture

if by "shit" you mean devalued assets, $550 Billion will allow you buy quite a lot of shit in the ensuing deflationary collapse (that JPM helped bring about)

socalbeach's picture

Neither, I'd walk away and let the bank have it.

Unprepared's picture

All it would take is one match..

CPL's picture

Or a penstroke would be cleaner.  Burning it only removes the reminder to never do it again. 

Beside I'm sure there are some sharp accountants around that would love to see how the entire scam was put together over 100 years.  Forensics is important in the matter of criminal activity on this scale.  7 billion people have been fucked by it, they at least deserve some answers for something this big.

fonzannoon's picture

"So if not trying to corner the IG9 market this time, perhaps Jamie Dimon can elaborate just which securities he now has on his books courtesy of the $550 billion in freely allocatable collateral courtesy of none other than the Federal Reserve."

Grande Tetons's picture

Maybe....they were trying to keep something else stable.


Cbicken, egg or inevitability? 

Urban Redneck's picture

Stability is over-rated, besides if they knocked the price back down to 666 they could just buy the whole damn S&P outright with that war chest.

Grande Tetons's picture

Excatly...and they would be doing so with a stronger dollar. 

TeamDepends's picture

Settlements war chest?

Bay of Pigs's picture

Only a half trillion?

Unprepared's picture

... of leverageable assets (deposits are credits and therefore debits and therefore assets, remember!)

hangemhigh77's picture

Yellen will put the future of Amerika in the hands of Jamie Dimon. I think she's his grandmother.

hangemhigh77's picture

How could anything go wrong with that THING Janet Yellen at the helm?  She looks like she knows what's going on.

hangemhigh77's picture

The business of Amerika is F R A U D.  This is how banks make money, they PRINT it.

jvetter713's picture

Think of all the naked shorting they can do on gokd and silver with all that.

hangemhigh77's picture

It's really a great business model, just rip off the sheeple. hmmmm, I think it's called CRIME.  

TPTB_r_TBTF's picture

mens rea


actus non facit reum nisi mens sit rea,


"the act is not culpable unless the mind is guilty"


falak pema's picture

Like I said on an earlier post this company controls the WS world. Fines, fines, what fines? Oh gold fines! Fine!


LeisureSmith's picture

Jamie the Corporate Welfare Qeen Extraordinaire.

youngman's picture

no wonder they needed to buy synthetic derivitives..what a joke Banking has is a rigged casino...

q99x2's picture

Gold a buck 2 sixty and falling.

Everyone is dumping to BTFD.

All hail the ChairSataness and her perfume..


ebworthen's picture

America, this is your government.

Poor Grogman's picture

Just one little inflationary spark and the whole mountain of "dry powder" goes up!

rustymason's picture

I guess it can just go on like this f o r e v e r .

Dewey Cheatum Howe's picture

The slush fund is about to be tapped if the debt ceiling isn't raised. The stock market must have it's heroin drip at all cost. The only question is how do they repo this or whatever mechanism they use into fungible cash or equivalent to use as liquidity to keep the balloon inflated.

These people are only loyal to the scam the banks are just fronts at the end of the day. I'm going to be proven right in the next year or 2 at the latest that JPM is being bleed dry to keep up the scam before they rotate all the key players over to the next bank in the participating in the scam and collapse the fucker leaving us holding the bag.

venturen's picture

Why does Jp Morgan even have loans they aren't really a bank...they are just a hedgefund that has a mask of a bank...oh and that access to unlimited FED dollars! Where do you signup for borrowing at ZERO to trade?

NotApplicable's picture

Just present your presidential cufflinks at any teller window.

socalbeach's picture

Does anybody know what "other liabilities" Manmohan Singh is talking about when he says,

"Whether banks maintain those added deposits as deposits, or convert them into other liabilities ..."

Is he talking about the bank making more loans with their excess reserves, or something else?

toadold's picture

Even historians in science fiction novels do better.  

"Gold is useless in a vault, the best use of it is as a currency."  My take on it was that gold and other PM would be in circulation along with paper bills  The PM would keep the paper honest through competition.  No FED involved only a anti-counterfeiting agency.

I am not a historian or Lord forbid an economist,  not do I play those roles on TV. But damn get a grip you bozos in DC.

tempo's picture

warmongering is one of American's biggest problems proclaims a Canadian blogger. Easy for you (Korea/Japan/EU) to say as America protects your shores freedom, and standard of living. American's military power is and remain the reason the dollar is the world's reserve currency which is the reason we can run massive deficits and living on entitlements and not work.

Catullus's picture

This is a dumb question, but these are deposits held at the fed in excess of the reserve requirement?

debtor of last resort's picture

"JPM Losing money for three of the last four quarters"...

Buying phyz?