WTF Chart Of The Day: "Holy $340 Billion In Quarter-End Window Dressing, Batman"

Tyler Durden's picture


If there ever was any question as to what the purpose of the Fed's Reverse Repo liquidity facility was, or is (and considering we already explained it before in Fed Soaks Up Record $200 Billion In Year End Excess Liquidity and Month-End Window Dressing Sends Fed Reverse Repo Usage To $208 Billion: Second Highest Ever), the amount of reverse repos issued by the Fed to make banks appear healthier than they are and to cure whatever "high quality collateral" shortfalls banks are now chronically experiencing, should slam the door shut on any future debate just what the motive behind the Reverse Repo is.

Behold: a record $340 billion in reverse repos submitted by the world's financial institutions with the Federal Reserve, an increase of $200 billion overnight, and amounting to a record $3.5 billion on average among the 97 operations participants. Considering this is a clear quarterly event, it goes without saying that all the reverse repo is, is a quarter-end window dressing mechanism underwritten by Mr. Chairmanwoman itself.

That there was some $200 billion in excess reserve liquidity as of yesterday's market close (which today was handed over to the Fed in exchange for one day rental of Treasurys), or that banks actually have a third of a trillion gaping shortfall in collateral, hardly needs discussion.

Expect total reverse repo usage tomorrow to plunge by at least $150 billion as the banks will have fooled their regulator, which also happens to be the Fed, that they are safe and sound. Rinse, repeat, until the entire financial system collapses once again and people will ask "how anyone could have possibly foreseen this."

As we said last time:

So step aside any sophisticated claims that the Fed's reverse repo is a means to extract liquidity when the time to raise rates finally comes: all this latest "tool" in the Fed's arsenal is, is nothing more than a Fed-mandated and endorsed mechanism with which the banks can fool regulators and investors that they are in a far healthier condition than they really are.


And judging by the humiliating episode involving Bank of America's made up numbers that punked the Fed into believing America's most insolvent TBTF bank was healthy enough to give be billions to investors, one of the parties most "confused" by what the RRP does, is the Fed itself.


Source: NY Fed

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Mon, 06/30/2014 - 14:01 | 4910383 HFBondsTrader
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Delivery process?

Mon, 06/30/2014 - 14:03 | 4910392 nope-1004
nope-1004's picture

Free markets, bitchez.


Mon, 06/30/2014 - 14:10 | 4910432 max2205
max2205's picture

Janet: 'call me irresponsible. ....'

Mon, 06/30/2014 - 14:17 | 4910474 Diet Coke and F...
Diet Coke and Floozies's picture

Ya, right. The WTF of the day is Nov Soy. Off a cliff... 

Mon, 06/30/2014 - 14:17 | 4910479 Manthong
Manthong's picture

It’s just a good thing the whole f'n system is not rigged and is not an illusion.

Mon, 06/30/2014 - 14:21 | 4910505 Say What Again
Say What Again's picture

How come we never hear about this shit on the 6:00 news, or 60 minutes?

Nevermind ...

Mon, 06/30/2014 - 15:42 | 4910954 Soul Glow
Soul Glow's picture

Honest Ben did a 60 Minutes interview.  They said he saved the world.

Mon, 06/30/2014 - 14:58 | 4910713 InjuredThales
InjuredThales's picture

I am dense and too lazy to think through this problem on my own.

Why would banks rather have the T bill than the cash?

The talk is of quality collateral. I understand you can't get yourself some quick repo cash without collateral, but what is meant in this context by "collateral shortage".

If you have cash, why do you exchange that liquidity for a liquidity generating instrument. Shouldn't his cancel out?

Can someone please explain this to dumb 'ol me in layman's terms that someone who has never been involved in this industry would understand?  Is it the process of transforming reserves into loanable cash?

Mon, 06/30/2014 - 15:33 | 4910916 moriarty
moriarty's picture

Me want to know too

Mon, 06/30/2014 - 15:59 | 4911018 SafelyGraze
SafelyGraze's picture

my excess holdings amounting to 1 billion federal reserve notes (formerly known as dollars) constitute an obligation of the insolvent federal reserve

hard to use them as collateral for a 10 billion "dollar" loan of more federal reserve notes

but if I swap them overnight for 1 billion in treasurys, those treasurys are an obligation of the us

full faith and credit etc

that is, of the taxpayers and their offspring who have not served their nation by droning or being droned or IED'd or concussed or whatever

those treasurys are great collateral

I borrow 10 billion "dollars" against the 1 billion in the in-swapped treasurys

then I report that I have 10 billion "dollars" on hand for my quarterly reporting needs

then I pay back the 10 billion, plus a nickel for the overnight fees, and then swap the treasurys for my original fedresnotes, and I'm all square

costs me a nickel, but hey -- I get to report 10 billion on my quarterly. 

and that just makes good business sense. both for me and for my shareholders.

corporate accounting, inc.


Mon, 06/30/2014 - 16:48 | 4911244 Amish Hacker
Amish Hacker's picture

This is how a six-year-old plays checkers.

Mon, 06/30/2014 - 14:02 | 4910384 hedgeless_horseman
hedgeless_horseman's picture



Night of the Zombies...

Brains! Funds!

Mon, 06/30/2014 - 14:08 | 4910410 SWCroaker
SWCroaker's picture

At least this quarter was a marked change from the last two! was lots bigger...

Mon, 06/30/2014 - 14:44 | 4910627 101 years and c...
101 years and counting's picture

this, coupled with tomorrow being tuesday and since tuesday ends in "y", means stocks should be up 1-2% tomorrow as all this collateral gets dumped back to the fed and put to work in risk.  no wonder USD/JPY has been dropping.  expect a massive move lower for the yen overnight and then promptly at 9:30am tomorrow.

Mon, 06/30/2014 - 14:08 | 4910413 LawsofPhysics
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2008 on steroids?

Could we please see some historic data tylers?

Mon, 06/30/2014 - 14:19 | 4910489 NoDebt
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There is no historic data.  This Repo window facility was just opened by the Fed last year.

Mon, 06/30/2014 - 14:24 | 4910510 LawsofPhysics
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The REPO market has been around for a while (1917 if I remember correctly), let's see the cumulative "market" for 2008/2009.


Is this an EKG for an increasingly healthy heartbeat or the begining of another heart attack?

Mon, 06/30/2014 - 14:29 | 4910527 NoDebt
NoDebt's picture

You'd be comparing apples and oranges.  There is no counterparty risk doing it with the Fed, or so the conversation goes.  Besides, you'd have to be borrowing some other bank's "collateral" to shore yours up.  Doing it with the Fed is "clean" becuase the Fed can do whatever they want with their balance sheet- nobody's looking over their shoulder, asking questions.

And this is a REVERSE repo window.  It was opened last year.  No historic data to compare it against.

Mon, 06/30/2014 - 14:47 | 4910631 LawsofPhysics
LawsofPhysics's picture

Doing it with the Fed is "clean" becuase the Fed can do whatever they want with their balance sheet"  -  Therein lies the rub, full faith and credit motherfuckers.  The fact that banks are going to the Fed for this tells me the PDs stink of desparation.  They had better sacrifice one of their own soon in order to "keep the faith" as it were.  Surprised it hasn't happened yet.

Mon, 06/30/2014 - 15:47 | 4910979 ThroxxOfVron
ThroxxOfVron's picture

IF the FED were not conducting RRPs the borrow would rocket into the close of the quarter.

IMHO, that borrow rate would imply a market interest rate of sorts; and it would be much higher than it is now.  -It would also mean that some participants seeking to dress the quarterlies would get caught short anyway as all offers might not be accepted: a pack cull would ensue, likely in concert with CDS and VIX volatilities.  Of course the naked short would be employed as in '08 for maximum constriction and to set up hostile FDIC managed 'dispositions' in the wake of collapse...


I also wonder if the fails to deliver are a distinct and growing tail problem following these RRPs.. 

Tue, 07/01/2014 - 10:39 | 4913671 TheReplacement
TheReplacement's picture


Mon, 06/30/2014 - 14:09 | 4910415 AccreditedEYE
AccreditedEYE's picture

Why would we want to ring-fence public deposits? Re-instate Glass-Stegall? But we'll be less competitive.. Will the system be weaker? You're asking the wrong questions. Just buy the high. Clearly reason hasn't made you any richer.

Tue, 07/01/2014 - 10:40 | 4913676 TheReplacement
TheReplacement's picture

We'd be pretty competitive when everyone else collapses and we don't.  Oh well, looks like we'll just collapse too.

Mon, 06/30/2014 - 14:08 | 4910417 Frank N. Beans
Frank N. Beans's picture

Riggidness - the state of rigging in a nation's economy


Mon, 06/30/2014 - 14:11 | 4910419 DavidC
DavidC's picture

Please, make this insanity stop...



Mon, 06/30/2014 - 14:11 | 4910439 max2205
max2205's picture

Hope they rip this fucker 5% this week!

Mon, 06/30/2014 - 14:30 | 4910454 AccreditedEYE
AccreditedEYE's picture

Have no doubt, they will. With 2 1/2 months equivalent liquidity coming into the market tomorrow you can make more than beer money in 1 day's "work".

Mon, 06/30/2014 - 14:12 | 4910444 ShorTed
ShorTed's picture

How many times do you guys have to hear this:  It's not the banks that have a 340 bln need, it's the mmkt funds and securities lenders who need to DUMP CASH on the fed and TAKE collateral because the dealers/banks have cut their books back for qtr end.

Mon, 06/30/2014 - 14:19 | 4910491 madbraz
madbraz's picture

I can guarantee you it's not "cash"...

Mon, 06/30/2014 - 14:44 | 4910614 ShorTed
ShorTed's picture

digital 1s and 0s then.  does that help you understand more clearly?

Mon, 06/30/2014 - 14:56 | 4910693 SheepDog-One
SheepDog-One's picture

Gee really, and what's the collateral, phony FRN's? Big deal.

Mon, 06/30/2014 - 16:38 | 4911218 InjuredThales
InjuredThales's picture

Thank you good sir.  That is all I needed.

Mon, 06/30/2014 - 18:19 | 4911643 ThroxxOfVron
ThroxxOfVron's picture

"How many times do you guys have to hear this: It's not the banks that have a 340 bln need, it's the mmkt funds and securities leanders who need to DUMP CASH on the fed and TAKE collateral because the dealers/banks have cut their books back for qtr end."


Hmm..  OK.  -I'd like to udnerstand your views on this more fully...

1. WHY would the mmkt funds and securities lenders wait until the end of the quarter to buy Trsrys?

2a. WHY would the mmkt funds and securities LENDERS go to the fed if they are BUYING?

2b. ...OR, are they NOT BUYING, just BORROWING?

2c. IF borrowing and NOT buying: WHY?

3. WHY would the dealers/banks cut their books for qtr end?

Mon, 06/30/2014 - 23:29 | 4912755 ShorTed
ShorTed's picture

1) because on every other day of the month we lend the funds into the overnight Eurodollar deposit mkt. the borrowers of my funds (predominantly foreign bank branches in the U.S.)pay me between 8 and 10 bps. They in turn flip the funds to the fed and collect 25 bps. Good business to be in from the first of the month to the second last day of the month but it swells your balance sheet. So on the last day of the month/qtr you let everything roll off so your ratios fall into compliance.

1a) the reason the fund and sec lenders wait until qtr should now be obvious...why would I take collateral at 5bps when the banks will pay me 8 - 10bps daily...with me so far?

2) the funds/sec lenders are not "buying" anything. They are putting their liquidity (I got scolded for calling it "cash" before ) out to the fed and collecting an interest rate (the net effect is the same as a certificate of deposit with slightly different logistics). Forget about the collateral because it just round trips from the fed acct to mine and back again.

3) The dealers role in this is the same as commercial bank...pass through arbitrage. Let's say Goldi takes in 200mm of agency discount notes from a hedgie in the first of the month, and gives him cash less the perfunctory 2% haircut. What the hedgie does with that is immaterial other than it closes out on the last of the month. Every day of that month Goldi is going to repo that collateral back out to a Mkt fund or sec lender at 12 or 15 bps so he's not funding the trade with his own capital. This is why the dealers have gobs of collateral to repo from the first of the month/qtr until the last. When month/qtr end comes they want to show a low leverage balance sheet so they unwind everything .

So now it's month/qtr end and the cash cows (Fidelity, Vanguard, JP Asset Mgmt, Dreyfus, etc) have significantly fewer counter parties for either overnight repo (dealers) or Eurodollar time deposits (mainly foreign banks but also some of the US majors) to invest their liquidity with. The fed becomes to counterparty of last resort to Hoover up the excess liquidity.

Hope this helps you too Sheep dog

Mon, 06/30/2014 - 14:16 | 4910472 stocktivity
stocktivity's picture

It's all Bullshit!!!

Mon, 06/30/2014 - 15:06 | 4910761 what's that smell
what's that smell's picture

it's all bullshit!!!

would it be cheaper for the FED to reverse repo american's credit cards every month?

just for fun, i say, let's argue about taxing the rich or the free shit crowd for know, the important stuff.

Mon, 06/30/2014 - 14:16 | 4910475 stocktivity
stocktivity's picture

It's all Bullshit!!!

Mon, 06/30/2014 - 14:18 | 4910487 SheepDog-One
SheepDog-One's picture

$200 billion in excess liquidity laying around.....holy shit we're gonna need a BIG fuckin sponge!!

Mon, 06/30/2014 - 17:09 | 4911302 TheSecondLaw
TheSecondLaw's picture

And an even BIGGER SPONGE for the $4 trillion plus on the Fed’s balance sheet.

Mon, 06/30/2014 - 14:24 | 4910511 marginnayan
marginnayan's picture

If the cash liquidity is being drained from the banksta mafia cartel, why the fuck is market going up huh?

Mon, 06/30/2014 - 14:34 | 4910566 JRobby
JRobby's picture

Because the market is open for trading.

Friday it won't go up.                              or down


Mon, 06/30/2014 - 19:30 | 4911968 lotsoffun
lotsoffun's picture

for a few reasons - but a big one being - there is your 'hyperinflation'.  this time it is different.  'things' most people need to exist are only going up 10% a year (oh sure, fed doesn't say so, but they are).  but russell 2000 is up almost 50% in two years.  it's that simple.

'cash paper dollars' aren't on the street.  bernake did not make that mistake.  digital zeros are all the rage, and only people with brokerage accounts can access them.

hence.  hyperinflation in stocks (and high end goods, homes, art).  not PM's yet, because that's squashed.


Mon, 06/30/2014 - 14:23 | 4910515 the not so migh...
the not so mighty maximiza's picture

it keeps getting bigger and bigger

Mon, 06/30/2014 - 14:32 | 4910556 nakki
nakki's picture

Come on people anyone with half a brain knows that as soon as they went to extend and pretend and mark to fantasy it was all a ponzi . With the stock in 2000 at least there was a glimmer of hope in the future. When GAAP is now considered legit and non GAAP becomes more and more the norm, its just a matter of time before it all goes south again, and power is even more concentrated. Probably one more bubble after that, and then......

Mon, 06/30/2014 - 14:33 | 4910563 JRobby
JRobby's picture

Something is amiss that they don't want made public...................................


Mon, 06/30/2014 - 14:59 | 4910719 SheepDog-One
SheepDog-One's picture

Something amiss....yea like the entire financial/economic system actually collapsed already years ago, and the elite ass hats just aren't ready for Armageddon yet.

Mon, 06/30/2014 - 15:54 | 4911020 ThroxxOfVron
ThroxxOfVron's picture

The Elites are the ones with the most to lose in a reset.

No One who is winning kicks over the boardgame.

Mon, 06/30/2014 - 14:34 | 4910573 insanelysane
insanelysane's picture

Of course it goes up.  Since the market is complete BS and has increased in value so do all of the operations that need to keep the market going up.  It only begins to end when the value of stocks in the world exceed the amount of wealth in the world by 3x.

Mon, 06/30/2014 - 14:34 | 4910576 orangegeek
orangegeek's picture

"... Mr. Chairmanwoman itself. ..."


Funny Tylers!!!!

Mon, 06/30/2014 - 14:53 | 4910676 The Most Intere...
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"He's a woman????  Jumping Josephine dear God have mercy!!!"

Alan Greenspan

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