Liquidity in the primary dealer Treasury bond market is drying up. Deposit outflows from large banks continue unabated. Capital outflows at small regional banks have slowed, but some banks continue to tap into the Federal Reserve’s Term Bank Financing Program, which hits a new high almost weekly. The loan matures in March, but it is doubtful that the debtor banks will be able to repay the loans. Like the “temporary” repurchase program that began in September 2019, the BTFP will continue to impact ATHs and the Fed will extend the facility’s expiration. This is de facto QE.
In my biweekly Arcadia Economics podcast, I discuss indicators that point to a large-scale banking crisis brewing. The day after recording the podcast, Citigroup announced tens of thousands of layoffs, another sign of the beginning of financial difficulties.