Faith in the system

March 17, 2023

–Bank of America, Citigroup, JPMorgan Chase and Wells Fargo each making a $5B uninsured deposit into First Republic Bank.

– Goldman Sachs & Morgan Stanley are each making uninsured deposit of $2.5B and BNY-Mellon, PNC Bank, State Street, Trust and US Bank are each making an uninsured $1.1B deposit, for a total deposit from 11 banks of $30 billion, according to joint statement-BBG.

–Every news site is reporting on this incredible show of confidence in First Republic.  It’s offensive.
The to-big-to-fail banks were the instant recipients of a huge multiple of deposits of what was placed with FRC.  That of course, caused discount window borrowings to soar for smaller institutions who instantly saw their deposit bases vanish ($164 billion borrowed from DW).  And now, after deposits of SVB were guaranteed, the Treasury wants the public to believe the funds placed with FRC are “uninsured.”  Good one.

–Why didn’t FRC just tap the discount window directly?  The maturity mismatch and inverted curve will create more issues, and after the ECB hike of 50 yesterday, the Fed is almost certain to hike 25 next week.  FFJ3 settled 9523 or 4.77% vs EFFR of 4.57%.  The Central Banks are trying to separate the inflation problem from the financial-stability-liquidity problem, but fighting the former with an inverted curve feeds directly into the latter. 

–Here are atm straddle prices for SFRM3.  
March 12
9475^ vs  9471.5, 39.0
March 13
9562.5^ vs 9558, 93.25
March 14
9537.5^ vs 9533.5, 93.0
March 15
9562.5^ vs 9561.5, 123.5
March 16
9525^ vs 9529.0, 80.0 

These are analogous to insurance premiums.  The big banks should be pasting every bid.  THEY know THEIR deposits are insured.  YOU know THEIR deposits are insured and that YOUR deposits are insured with THEM.  The treasury guarantees it.

–Big equity option expiration today.

Posted on March 17, 2023 at 5:07 am by alexmanzara · Permalink
In: Eurodollar Options

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