$242 Billion: That Is How Much Record "Window Dressing" Banks Got Today Thanks To The Fed

Tyler Durden's picture

The last time banks scrambled to pad their books into the quarter end, and come begging at the front door of the NY Fed's Liberty 33 office, was on the last day of Q4 and 2013, when nearly $200 billion in Treasurys were handed out by the Fed to over 100 counterparties in what was the largest reverse repo operation conducted by Ben Bernanke, and his brand new Fixed-Rate Reverse Repo operation, in history.

That was the record until today, when just over an hour ago the Fed disclosed that as part of its most recent reverse repo operation, it had handed out to 93 dealer banks and other financial intermediaries, both foreign and domestic, some $242 billion in Treasurys in what is now the biggest reverse repo operation in history, a privilege for which the collateral-starved banks paid the Fed the king's ransom of 0.05% in annual interest, i.e., nothing.

So while hedge funds, speculators and assorted vacuum tubes are rushing all day to bid up all the overvalued stocks they can find in order to make their quarter end P&Ls appear more attractive to LPs even as the early ramp and late selloff is again set to resume tomorrow, the megabanks too were rushing to the "window dressed" safety of Treasurys in order to make their balance sheets appear more attractive to regulators and supervisors, in a world in which high quality collateral is much more valuable than the Fed's fungible reserves, and which helps indicate much higher capitalization ratios than otherwise would be observed at the collateral-starved banks.

But what today's off the charts reverse repo really shows us, aside from the fact that all the reverse repo operation really is, is a way for the Fed to make bank balance sheets appear far better than in reality (for all those still confused), is that the collateral shortage we have been warning about for the past several years, and which is getting only more acute the longer the Fed soaks up all 10 year equivalents from the Treasury market (of which it now holds 35% and rapidly rising), is getting worse for banks.

And in related news, one should consider that tomorrow - with their books well padded for the March 31 daily security "holdings" - the banks will almost certainly unwind over $100 billion if not more of today's reverse repo, an amount that is now equal to nearly two full months of QE. Where that money will go, only the (NY) Fed and a few bank CEOs know.

Then again none of this should come as a surprise - we said precisely this during our last such window dressing observation, to wit:

In short: collateral window dressing on; collateral window dressing off, all with the blessing of the banks' overarching regulator, the Federal Reserve. What is most disturbing is that both the world's largest financial firms, and by implication the Fed, just admitted there is a massive collateral shortage currently if banks are forced to pad their books to the tune of nearly $200 billion in "high quality collateral" just to pass year-end auditor muster.

Today's record quarterly window dressing merely confirmed precisely this.

So while the Fed can provide on both an orderly and on an emergency basis up to the total amount of Treasurys it holds on its entire balance sheet amounting to $2.3 trillion (as of today), what will happen if banks find themselves needing to urgently satisfy $2.4 trillion, or $2.5 trillion, or $5 trillion, or more in Treasury deliverable demands, as collateral chains suddenly collapse on themselves as they did the day after Lehman's bankruptcy and rehypothecated Treasurys, not to mention re-re-re-rehypothecated Treasurys have to be delivered once those infamous "off the books" repo and reverse-repo operations suddenly find they aren't quite netting each other off, as we have also been warning for years.

We hope not to have to find out, at least not for some time, because the outcome would make the Lehman aftermath seem like a walk in the park.

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Honey Badger's picture

Now is as good of a time as any to say, Fuck the Fed

Headbanger's picture





How's that? 

And buy moar ammo!

fonestar's picture

$242 Billion?

"When the levee breaks I'll have no place to stay."

max2205's picture


fonestar's picture

No, that is why you do fight the Fed.  Becuase the Fed is hellbent on its own destruction.

Bindar Dundat's picture

Yes Fonestar but by the end  of the FED the owners of the FED will own everything...I mean everything.

SilverIsMoney's picture

Holy crap I just agreed with fonestar!

caShOnlY's picture

what a paper PONZI scheme shit show this is.

Bill of Rights's picture

Du Pont heir gets probation for raping 3-year-old daughter

A judge who sentenced a wealthy du Pont heir to probation for raping his 3-year-old daughter noted in her order that he "will not fare well" in prison and needed treatment instead of time behind bars, court records show.

Superior Court Judge Jan Jurden's sentencing order for Robert H. Richards IV suggested that she considered unique circumstances when deciding his punishment for fourth-degree rape. Her observation that prison life would adversely affect Richards was a rare and puzzling rationale, several criminal justice authorities in Delaware said. Some also said her view that treatment was a better idea than prison is a justification typically used when sentencing drug addicts, not child rapists.


McMolotov's picture

Some animals are more equal than others.

NoDebt's picture

That's just wrong on so many levels.  Starting with the "ewwwww!" factor.

I'm wsurprised the judge didn't say "what possible difference could it make now?"

One of the Kennedy clan got out of a DUI in New York a few weeks ago, too.  Blasted on something, but convinced a judge they didn't mean to take it before they got behind the wheel.  Oh, OK, on your way, then.  Try to be more careful in the future when you're driving drunk or raping toddlers.


ParkAveFlasher's picture

WTF is "fourth degree", and how does that apply to a crime against a toddler?  Did he claim seduction?

adr's picture

Wealthy industrialists don't like to pollute the bloodline with the DNA of commoners. He just wanted to get her used to what will happen in a few years when it is her turn to pop out more Du Pont heirs.

It astounds me that people actually think the wealthiest among us are stand up people. I always tell them to think of the most depraved acts they can imagine, then I tell them that is just an appetizer for them.

When they don't believe me I tell them to search public sex acts in San Francisco. The shock and horror is sometimes too much for them. Sometimes I think it is sad to destroy the naivety of a mid 50s woman. But there will never be the needed change if the truth is obscured from common sight.

Rainman's picture

" The marriages that I should prefer for our colony would be between the cousins. In that way we should be sure of the honesty of soul and purity of blood. "

                             Pierre S. DuPont



Dr. Venkman's picture

Attorney General Beau Biden says he was not aware of the case -- I am torn on this; on the one hand, AG Biden is a complete and utter moron (rumor is that Delaware changed its 3-strikes and you're done on failing the Delaware bar exam in order to accomodate him) who delegates even the big, spotlight cases to his subordinates; on the other hand, Richards is a duPont AND the son of the founder of one of DE's most prestigious firms which suggests there is no way in sam hell that this was not brought to his attention.


Hang em all is my solution.

daveO's picture

My dad used to date a woman who had relatives in Delaware. One had worked at the Pyscho hospital they built for all their in-breds. This ain't the first time it's happened. After reading Venkman's post, this explains what's wrong with Joe B.

PlusTic's picture

Gee, I wonder why we are up so much in the exact postions they are all long...duh!

Boston's picture

"...what will happen if banks find themselves needing to urgently satisfy $2.4 trillion, or $2.5 trillion, or $5 trillion, or more in Treasury deliverable demands, as collateral chains suddenly collapse on themselves...."?

That's the day I will sell my Treasury portfolio.....at a profit.

fonzannoon's picture

Is there actually a point in time where these reverse repo's, or China, actually begin to have a negative impact on equity markets? 

hobopants's picture

When the bubble they help create pops?

NoDebt's picture

Like asking whether doing a quick clean-up and throwing all the junk into a closet for a few hours while we have company over is going to harm me someday.  I doubt it.

SmilinJoeFizzion's picture

What's a quarter-trillion between friends

ziggy59's picture

Hmmm..lets see...bonuses, hookers, coke, summer houses in the hamptons...

hobopants's picture

Yes give them more shit to leverage up to the moon, that'll fix the problem. 

youngman's picture

Easy money if you can get it...I cant...and neither can you

foodstampbarry's picture

"It's one big club, and you ain't in it"

George Carlin

grid-b-gone's picture

Did anyone really expect Janet's first quarter to be a blatent failure? We're not going to see Bernanke's 2% per month average with tapering, but don't expect anything resembling natural market forces to appear anytime soon.

Babaloo's picture

So the banks and dealers give the Fed cash, and the fed lends them securities, and this is "window-dressing" for the banks and dealers?

Are you guys 'effing nuts?  In what universe do securities look better on the balance sheet than cash?

delivered's picture

From my perspective, one form of cash is simply being exchanged for another (assuming the repo action is with T-Bills). No real difference between USDs and USTBs as both yield nothing, are backed/secured by nothing, both are technically a form of debt, and are printed in mass by parties with no real accountibility. The market may view the two being "technically" different but for people that really understand currency, there is no difference. Recent global transactions have simply by-passed the USD and exchanged USTBs for hard assets which supports this trend (as I believe China has purchased assets in Africa directly with USTBs).

One would think that cash looks better than USTBs but then again, without having a clear understanding of the collateral chain, or that having too much cash indicates a bank is sitting on dead assets that don't provide a yield, the market may view otherwise. To me, the trend that is more interesting and potentially worrying is why each quarter the amount continues to increase. Is there really this much excess cash in the system that banks can't deploy (in loans/investments)? Is there a problem brewing in the collateral chain (that ZH has focused on for quite some time)? Are yields anticipated to potentially move negative as deflation (a problem the ECB is focused on) and/or worries about the economy grow further (thus USTB might be attractive to hold if the period is reasonable)? 

I would tend to agree with your comment that historically, cash would be the desired asset to hold to window dress at the end of each quarter (for all industries really). But we're not operating in normal times so this trend of continued increases in quarter end reverse repos needs to be understood in more depth to identify where the stress/risks in the system lie.

nightshiftsucks's picture

I'm probably wrong but cash isn't collateral ?  Your friend borrows 20 bucks from you and gives you a T bill as collateral,same friend borrows 20 bucks from you and gives you a twenty dollar bill.

Tyler Durden's picture

The one in which people have read this Zero Hedge primer explaining what constitutes high quality colleteral, and what, alternatively, is not and is merely a de novo Fed created reserve, i.e. fungible cash.

Then again since so few actually understand how shadow banking works (5 years after Lehman crashed precisely due to a shadow banking freeze), even fewer perhaps than HFT, it is not a surprise why this is such a confusing topic.

Babaloo's picture

So "Tyler" when the Fed finally does reverses for real in an effort to drain reserves (otherwise known as cash) and push interest rates higher, will the commentary (i.e. window dressing) be the same?

ShorTed's picture

Most of that collateral didn't go to banks but rather ended up in Mmkt Funds.  The banks are busy winding their borrowing books DOWN to make their capital ratios look better for the qtr end.  With no bank counterparties for the funds to deposit overnight money, the Fed boosts the reverse program.

Makes a big headline but not as sinister as you'd think.

Rainman's picture

ON/OFF balance sheet window dressing ?? ...... ain't this the exact reason they used to let Lehman bust out ??

Hypocrisy is so damn confusing.

starman's picture

so basically all those banks are insolvent?

shutdown's picture

They may have been, but they sure aren't now. 

Yen Cross's picture

    Here's a picture of the insanity in all it's glory...What a wasteland these markets are.


q99x2's picture

These bankers have taken away democracy and are worse than the Soviet Union ever was. Why doesn't the United States of America go after their enemies.

In the name of democracy: long live the revolution.

SilverIsMoney's picture

In the name of the Republic... democracy always fails, there's many failing before you right now,  and it's because mob rule doesn't work.


"It's a Republic, if you can keep it' - Benjamin Franklin

Kirk2NCC1701's picture

At this point, they HAVE to, just to keep the fiat Ponzie from blowing up, and to front-run any BRIC currency nukes.

Until Russia and Iran start selling petro energy in other currencies, and countries like India, China and S.Africa back theirs with gold, expect the Fed's Ponzi to keep reaching new heights.

Expect the intimate circle of the Fed's CB friends to stay in Yellen's self-serving circle jerk.

The Abstraction of Justice's picture

Just a pity this article, which is probably detailing the fundamentals of bank solvency in a fraudulent QE system, is written in economese technobabble. It is possible to write the equivalent in plain English, so that mortals can follow the logic without having to look up such as reverse repos.

ReactionToClosedMinds's picture

think you have excess cash and want to make a return when you might need it in 120 days....hence you 'borrow' treasuries for 30/60/90 days etc, during which time yyou get an allocation of the period interest rate.  that is the 'normal' process and function (excepting S&Ls getting hoodwinked into 'trading' in them in early 80s/late 70s.....and then interest rates per Volcker dropped and these 'safe' trades blew up many a staid Bailey Mortgage & Loans).  That was the 'nornal' old days.  (Repo & Reverse Repos are just what direction you need to do for what goal ...again in the 'old' days)

Now, you have ZIRP & QEInfinity, and banks that are swamped with cash but really cannot do much for a number of reasons (and this is where the theoretical speculation is now starting.......)....  It is a nominal trade really.... so what is the point of engaging in it?   Collateral cushioning it seems  ... for who & why then?  Hence, also, big banks do not want to buy long-term what might be 'volatile' somewhere as QE ends and then ZIRP ends...... or as ZH is suggesting less speculatively, there are no Treasuries to swap amongst themselves as Fed is buying them all up under QEInfinity.

What a cluster f*ck... and these people are 'rich'....for what?

Basically, the suggestion, hard to refute, is that 'markets' are not functioning properly (we know that except maybe your local 'wealth advisor' does not, it seems, or CNBC)......... so this 'unusual' from  normal repo/reverse repo 'market', is suggesting something is not right in Denmark..... (some Shakespear).

now for a little higher ethanol in your gas tank ....add HFT, and Abenomics, and China's shadow debt im0losion they are 'controlling' to introduce 'moral hazard' (hah!) etc.....