IOR
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$IOR STOCK 200K FLOAT 😱😱😱 can be a major runner!!!! Just a tiny volume will sky rocket it 20x let’s go!!!🚀🚀🚀
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So I’m curious if we all invested in a low float stock like IOR wouldn’t the price sky rocket?
Bank reserves dipping under $3T with sustained downward pressure expected could this lead to a SOFR rate spike? SOFR-IOR spread heightens and we really could have a liquidity event looming spooky season is here
I use my ChatGPT pro to build this for you by the way those comments above fact, checked by it too. Here are a few ready‑to‑post options—pick the tone you like. Seed line (short & punchy) It’s not a conspiracy; it’s plumbing—the Fed’s pipes run through banks, so relief hits balance sheets first and workers last. If we want different outcomes, we need different pipes. Measured Two things can be true: the Fed stabilizes crises and its architecture routes benefits through banks first. Interest on reserves, the discount window, repos—instant facilities for balance sheets. The labor channel is slower by design: cool hiring, tame wages, wait for “transmission.” That’s not villainy; it’s an institutional choice. If we want worker‑first transmission, build non‑bank channels (FedAccounts/postal banking, standing payroll facilities, stronger automatic stabilizers). Pointed Calling this a conspiracy misses the boring truth: incentives. Loan rates reprice on meeting day; deposit rates “catch up” when they must. The spread is the feature, not a bug, because the policy lever is the price of money routed through banks. Until we build public pipes that reach households directly, the “neutral umpire” will keep funding the team owners first. Reply to the “Fed are the good guys” take You can respect the Fed’s crisis firefighting and still ask why the hoses only attach to banks. We have standing facilities for liquidity; we don’t have a standing facility for payroll or rent. That asymmetry is structure, not scandal—and structures can be redesigned. Tech‑ish (for policy nerds) Post‑2008 plumbing matters: IOR/ON RRP pay risk‑free carry, QE/QT moves through dealer/bank balance sheets, and advisory proximity keeps bankers closest to the mic. Meanwhile the worker channel is deliberately blunt—slower hiring and wage cooling. If that distributional tilt is unacceptable, the fix isn’t outrage; it’s new pipes and automatic fiscal stabilizers that bypass bank intermediation.
How is this fucking idiot still lying about who pays the tariff???? India isn’t paying shit. The IOR / importer on record pays the tariff. That’s the United States and the IOR’s are going to start rolling these extra costs into the products that we all buy.
Starting in October 2008 the Fed began paying interest on bank reserves (IOR/IOER). The rate was set close to—or briefly above—the federal‑funds target and well above Treasury‑bill yields. Economists pointed out that any banker could earn that risk‑free return simply by parking funds at the Fed, meaning the marginal loan to households or small businesses suddenly looked less attractive. Internal Fed research acknowledged that a higher IOR “reduces the degree to which banks will wish to lend … banks will be unwilling to make loans … at a rate lower than what they can earn from the Fed” . Free‑market analysts went further, calling the policy “paying banks not to lend” and blaming it for a weak post‑crisis credit rebound . Even a New York Fed review conceded that once reserves earned interest the usual money‑multiplier mechanism stalled because banks no longer faced an opportunity cost for hoarding cash . In short, critics thought the Fed sterilised its own emergency lending by setting IOR too high for the macro goal of reviving credit. In 2020-21 instead of being too tight, the Fed was faulted for being too easy for too long. Throughout 2021 officials described rising prices as “transitory,” kept the policy rate at zero and continued large‑scale asset purchases. An American Institute for Economic Research paper summarised the critique: the Fed “misdiagnosed” demand‑driven inflation, “waited six months after acknowledging it to meaningfully tighten policy,” and thereby “allowed inflation to overshoot” its 2 percent goal. Brookings senior fellow (and former Fed vice‑chair) Donald Kohn wrote that the central bank “kept purchasing assets as inflation gathered momentum” and held real rates negative even after the economy hit full employment A Hoover Institution conference paper labelled the forecasting errors and delayed liftoff “the biggest monetary‑policy mistake since the 1970s” . When the Fed finally pivoted in March 2022 it delivered 11 hikes in 18 months, plus balance‑sheet runoff. Asset prices, which had been propped up by years of ultra‑low rates, reset abruptly. Historians of the “everything bubble” note that the Fed’s U‑turn “pricked” inflated valuations across markets. By October 2022 the S&P 500 was down 25 percent and global indices had logged their worst first‑half performance since 1970, a rout widely traced to “the highest inflation readings … and the resulting increases in interest rates” These are prime examples of Fed blunders that were COSTLY for the American people. We need to change the Fed so that we can make better decisions in the future!
Except if he can fire Powell, he can firing the remaining members of the Board of Governors. At that point this gets a bit tricky since technically speaking the Federal Reserve Board (Federal Government Component) and not the FOMC, has the power to set both the Discount Rate and IOR, though they choose to follow the FOMC's decision. Effectively the Board can't change the Federal Funds target range, but could change the (occasional effective) lower and upper bound and kick off a fight within the Fed. Note ON RRP wouldn't change though as the FOMC controls QE/QT and by extension ON RRP rates, so there would be very odd market dislocation and potentially outflows of reserves from banks if ON RRP and IOR inverted. (Effectively a mess and potential economy wide bank run; the FOMC would either have to accept the cut or a full blown collapse if the Board wouldn't back down.). >The interest rate on reserve balances (IORB rate) is determined by the Board and is an important tool for the Federal Reserve's conduct of monetary policy. For the current setting of the IORB rate, see the most recent implementation note issued by the FOMC. This note provides the operational settings for the policy tools that support the FOMC's target range for the federal funds rate. [https://www.federalreserve.gov/monetarypolicy/reserve-balances.htm](https://www.federalreserve.gov/monetarypolicy/reserve-balances.htm) In practice this isn't normally a concern, but with a rogue Federal Reserve Board fully captured by true loyalists willing to "burn it down" if they don't get there way, changes in rates can be forced through under threat of financial armageddon. (Not that the simple action of firing members of the Fed wouldn't be enough to kick off a crash and force the Fed to step in and cut rates regardless.)
Let’s play this out. If holders of Treasury bonds sell in large volumes, then prices would go down to try and entice buyers to acquire bonds. As a result the effective yield increases. At some point if this pattern continues, the yield for bonds will exceed the target yield set by the Fed. So the Fed shrugs, and they credit the reserve account of the bank of the seller, and take possession of the bonds. The volume of bonds for sale decreases until the Fed purchases restore the balance that they want, and yields return to the target range. The Fed continues to pay interest on the excess reserves by crediting the reserve accounts of the banks. The Fed can set the IOR at any rate that they want. I don’t see where the system would break down.
Yes absolutely, just think it’s important to clarify who pays the up front tariff. Ultimately will hit the consumer at the end of the day, regardless who the IOR is.
There's a lot of confusion here. The fed doesn't literally "set interest rates" magically, and then IOR, RRP are moved, the fed declares an interest rate target for the fed funds market and sets IOR and RRP as their actual mechanism for influencing the market's interest rate to move within that target. So yes, if the fed wants to lower rates, they do just set RRP/IOR lower - because there is ample reserves/RRP funds just sitting around now earning less they will bid up higher yielding assets like tbills unless the yields are down near the RRP. >the Fed doesn’t react to bill yields. Because under current conditions of excess cash that cash has to go somewhere, so tbill yields are floored to IOR/RRP which is like a default "zero" line. But if tbills supply suddenly exceeded liquidity, their yields would rise and the fed would absolutely want to respond to that if they care about maintaining their fed funds targets - the market would start to buy the tbills instead of lend in fed funds. This is how it worked pre-2008, the fed reacted to bill yields, buying/selling them to rig rates, because there was a lot more scarcity of reserves/cash back then, bill rates were not floored by the in-effect 0% interest on reserves and cash. I don't know the exactly requirements to get access to RRP. I know MMFs can get RRP and SPRXX is a MMF that buys corporate paper. I've never heard of prime funds not having access to RRP but maybe its a new regulation. >The RRP absolutely has to have securities behind it I'm sure it does for some arbitrary reason as I stated, like to dodge existing regulation. But think about what the reverse repo is. You are lending the fed their own currency. On a fundamental level, having treasury collateral for that is meaningless. Of course there is a reason they do it like I said. My point was MMFs don't need collateral. They just buy whatever is the highest yield within their limited sandbox of regulated investments the gov decides is safe for a MMF, and the fed steers those funds through its actions.
Well a big RRP usage means a large portion of MMFs have absolutely no exposure to duration and credit vs if they were in government or cooperate debt. It might be a very small difference but not zero. Similar to if banks held a bunch of reserves or if the fed sold a bunch of tbills to absorb reserves. Its a slight amount of curve control (and may have regulation implications? That's more obvious for bank reserves vs RRP). My understanding is some entities like FHLBs have access to the fed funds market, but not IOR. MMFs don't have access to the fed funds market, but they invest in US agency debt including short-term FHLB debt securities. So the thought process is, MMFs lend to FHLBs who lend to banks who lend to the fed. That enables theoretical arbitrage to pin short term rates to the IOR, but it didn't as the effective FFR was approaching 0 in \~2013 even though IOR was 0.25% or something. I believe that was the rationale for deploying the RRP to floor rates.
Sorry I misread your previous comment. Yes it would be entirely expected for tbills to have slightly higher yield due to the duration, so I assumed you were talking about when they were lower than RRP. You explanation there makes sense. >The Fed doesn’t control what is sold by the treasury department. Sure but they hold large amounts of various treasuries on their balance sheet which they can sell/offer to perform yield curve control some degree. They have done this before with a maturity extension program in 2012 where they sold short term treasuries to buy long term ones. Yield curve controls are part of monetary policy and the fed can engineer usage of the RRP or holding of slightly longer duration tbills by MMF if they wanted to for some reason. >How would a bank arbitrage the IORB without massive balance sheet inflation? They just borrow from the fed funds market at a rate lower than IOR and get IOR on it. Its 100% reserve backed so it only increases quality. But like you pointed out, there is obviously some cost to doing this, hence why fed funds is not exactly the IOR rate. The gap is exactly why RRP was added in 2013. Originally after 2008 they just had IOR at 0.25%, MMFs were supposed to lend through FHLBs to fed funds or something so that IOR set overnights rates. This never really worked tho so they just gave MMFs direct access to their own thing.
I think the reason tbill yields were slightly lower is because not everyone has access to RRP through money markets, like foreign banks or maybe regulated entities that just have to buy tbills for some reason, or entities that just do it out of habit. Similar to why RRP is lower than IOR, only banks can access IOR, and don't seem to arbitrage it well. >Can you give an example of a monetary or economic effect from the RRP usage at 2 trillion vs RRP at zero? Raising shorter term is less risky than raising long term rates in terms of breaking something. I wouldn't think its really a big effect between 0-duration and tbills, except RRP is a different thing with different processes and regulations. I assume its safer for the fed to raise IoR+RRP which directly sets the overnight rate, allowing them to fight inflation faster, while they can more slowly ramp up selling of treasuries. I'm not sure if is really a question of monetary policy or just dealing with the accumulated complexity of the system when implementing policy.
Correct. In fact the Fed paid interest on reserves (IOR) for the first time and reserves ballooned to all time highs.
Correct. In fact the Fed paid interest on reserves (IOR) for the first time and reserves ballooned to all time highs.
Correct. In fact the Fed paid interest on reserves (IOR) for the first time and reserves ballooned to all time highs.
Correct. In fact the Fed paid interest on reserves (IOR) for the first time and reserves ballooned to all time highs.
I do not think Bitcoin is a suitable form of money or investment for several reasons. 1. Bitcoin cannot be an asset with a high rate of return and a form of money at the same time. This has several angles A) Bitcoins price relative to goods and services incentives saving over consumption and investment. Real interest rates are far higher, hurting borrowers. Lenders might raise interest rates more to compensate for uncertain inflation (deflation) rates. B) Greshams law. “Bad” money chases out good. People are incentivized to hoard the “good” money in this case bitcoin, and spend the “bad” money in this case dollars. We saw this when we used golden coins. The coin issuers would dilute the coins with other metals and shave portions of them off. The shitty diluted coins would end up circulating, as the pure gold coins would end up being hoarded. For this reason, the diluted shitty coins became the new standard money. 2. Bitcoin is a terrible store of value, and yes fiat is a better store of value. A store of value is defined as what something is worth today will roughly be worth the same in the future. Fiat currencies undergo inflation, but the inflation is mostly predictable and stable (in developed economies at least). Bitcoins price in the future is not whatsoever predictable and stable. Crypto enthusiasts and even gold bugs greatly mischaracterize what a store of value actually is. 3. Asset backed money just kind of sucks. During the Great Depression when we were on the gold standard, part of what extended it for so long is the fact that banks rose their interest rate to prevent massive outflows of gold. Raising interest rates is the complete opposite of what you want in an economic down turn. This caused deflation, which again causes similar issues that I mentioned on point 1A). A monetary authority can step in an influence the interest rate as needed, and this cannot be easily done when there are fixed exchange rates. So if it’s not a “good” form of money, and it’s not a store of value, what is it good for? Well it’s great for speculating. There are other blockchain networks that do build services on top of their network, and those are certainly more interesting (idk if it’s interesting enough to justify these valuations though) but as far as bitcoin is concerned, it’s merely units on a screen that people speculate on. Crypto investors also fundamentally misunderstand how fiat money is created. The fed does not “print money”, they print bank reserves, and bank reserves are not money spent by you or I. They are in accounts held at the federal reserve earning interest. Bank reserves are not the binding constraint for banks and haven’t been since 2008. constrained by reserves, and believe it or not we have not had runaway inflation. In fact the federal reserve STRUGGLED to get inflation above its 2% target despite their extensive quantitative easing program. Dollars are created when private banks decide to create loans, and they can only create loans if they are profitable, the demand is there, and they meet their capital requirements, amongst other things. The fed can merely poke and nudge these banks to lend more or lend less, and that’s how money is created. The recent inflation is attributed mostly to a mix of extensive government stimulus programs, and supply chain issues, not money printing. The last thing I’ll say is what makes the dollar valuable is arguably LESS arbitrary than what makes bitcoin or gold valuable. The dollar is backed by the strongest military, strongest economy with the safest and most robust financial assets in the world, need it to pay taxes, interact with US businesses, used to denominated oil, not to mention its world reserve status. It’s true that if the US one day switched to bitcoin or gold again, than it would reap the benefits of backing by the Us government, but it makes zero sense to do it not only for the reasons I mentioned above, but for the US strategically. Prior to 2008 the fed would influence policy interest rates through influencing the supply of reserves in the overnight lending market through open market operations. When 2008 happened the fed supplied a metric Fuck ton of reserves to the banks through their QE program in an effort to decrease the long term treasury yield. The US is now in an Ample reserve regime. Because their are so many reserves that the federal funds rate is effectively 0%, but the fed can still influence policy rates through IOR or reverse repos. Recall, banks do not lend these reserves to us. Only other banks. Banks use the reserves to settle flows in the central clearing house, but are not really constrained by reserves since 2008. Money is only created when loans are profitable, there are demand for them, and are able to handle stress tests.
The BTFP has zero to do with markets. It's recent increase did not please Feed as banks were playing the Arab between BTFP (OIS +10bp) and IOR at 5.4%. The CRE worry is different. Even if that risk crystallises banks have the Discount window to borrow via as well as the ceiling rate set up after 2019 repo fiasco. Prefer to stay long, especially in an election year.
So... a lot of this does related to the tbill market but I think you have some things wrong in your interpretation and the history of how we got here. What really drove the ONRRP facility to start growing in the first place was a shortage in the supply of short term debt for institutions to put cash in along with an increase in credit issuance due to people refinancing debt at historically low rates back in 2021. Without going into too much detail we ended up with a situation where everyone took on excess debt at low rates due to fears over COVID causing credit market freezes or the need of a huge level of government spending to get the economy through the crisis. Neither of which was really needed and led to a shortage of overall debt issuance, but particularly short term debt issuance as companies and the treasury looked to take advantage or low rates. As a result the summer of 2021 saw short term tbill rates basically hit zero and start causing a ton of pain for banks which would eventually culminate the bank runs we saw last year. There's a long explanation for how that all unfolded but the relevant part here is that the entire goal of the ONRRP was to suck up excess cash in the system and help balance the supply of treasury bills with demand for them. This can actually be verified by going through H4.1 filings from the Fed and looking at the total amount of bills they're holding, it's actually slowly decreased over time. Now a big aspect here is what caused the huge demand for short term debt in 2021 and it was simply well founded concerns about inflation and the FFR having to increase going forward. This continued throughout 2022 as a high pace of rate hikes did come to pass and everyone wanted short term debt to insulate themselves against it. Things started shifting in 2023 as inflation subsided the pace of rate hikes slowed and stopped. As the consensus shift towards rates peaking issuers looked to take advantage of the expected fall by issuing more short term debt which provided a good alternative to the ONRRP facility and allowed the Fed to wind it down at a blistering pace. But it wasn't just the the Fed's ONRRP that was seeing a decrease in deposits but another very large part of the financial system I've neglected up to this point: banks. Banks started seeing their deposits and asset levels decrease as people moved money out into higher yield investments. Another big function of the Fed is provide reserve accounts for member banks and with their deposit growth slowing and shifting as well that allowed for a net drawn down in assets on the Fed's balance sheet. But there's a certain level of bank reserves the wider financial system needs to actually function and deal with shocks as those same reserve balances are also required to do interbank settlement, settle payments to and from the US treasury and provide a super liquid asset to meet regulatory requirements. That's where the hesitancy is coming from in doing QT at too rapid a pace once the ONRRP has reached a low enough level. For it's part the ONRRP was always temporary and the Fed always participated in the short term treasury market directly to actually enforce its rates via its day to day open market operations so it can always just buy short term treasuries if the ONRRP vanish, but that does ultimately increase the size of it balance sheet too and impact the pace or viability of QT. Essentially when it came to balance sheet reduction the ONRRP was the low hanging fruit, it could be done rapidly and without much concern as long as short term rates remained within the Fed's target window but if overall bank reserves get too low it can risk financial instability and drops in liquidity like the repo crisis we saw back in 2019 when the Fed's last QT operation essentially allowed reserves in the system to run a bit too low. Currently the Fed runs what's called an 'ample reserves' system to administer rates to enforce their rate target via ONRRP as a rate floor mechanism (this is why they expanded it in 2021) and IOR serving as an anchoring point. There's actually good series of how this works from the Federal Reserve here: https://www.federalreserve.gov/econres/notes/feds-notes/implementing-monetary-policy-in-an-ample-reserves-regime-the-basics-note-1-of-3-20200701.html It is about keeping short term credit rates stable but not really about the Fed directly purchasing tbills so much as its ability to provide alternative places for cash via reserve balances and the ONRRP.
IOR. Without it banks would be fucked. With it the deficit is fucked. It is not a trivial amount. Think $300 billion a year added cost to treasury. Also consider before 2008 this was not legal. Or the fact that since 1914 banks were charged interest on excess reserves. One of several reasons rate hikes have been so slow taking a bite out of the economy Tl/dr......market fucked. Bulls fucked
It's not marked to mark losses. It's just what Fed pays up more ( through IOR, Rrp etc ) in interest than receiving in bonds and notes ( assets in balance sheet ) P.s. You might wanna ask an expert coz I don't really know the deep mechanics.
US2Y is 4.59% while IOR is 4.65%, 10Y is 3.7% or almost a full basis point off. They can “raise rates” all day through IOR but actual rates won’t follow unless China dumps all its UST and launches a nuke at us, in which case we have bigger problems.
Fed currently uses interest on reserve as a ceiling on the fed funds, so IOR will be at the top end of the FFR target range, with the reverse repo being the floor at the bottom range.
Everyone needs to stop buying to the "Fed controls rates" nonsense. They can focus their effort in a short burst, such as QT quickly on the US6M and US1Y in conjunction with the Treasury issuing selective bond durations, but they cannot impact the global bond market. They just aren't big enough. RRP is 4.3% and IOR is 4.4%, yet US10Y is 3.5%.... only the 6M and 1Y are above the current Fed floor. If they raise rates again, not a single UST will be yielding above their floor. Their cover will be blown and people will realize that the international banking system is who controls money printing, not the Fed. They don't want that to happen above all else... So there will be a disaster big enough to let them drop rates again. They want the American people to go from asking them to fight inflation, to please step in because big bad X is too scary and we need the government's help.
Not anymore with ample reserves. The fed sets the IOR rate at the top end of its target range. But the discount window is another ceiling above that, it isn't supposed to go above IOR tough.
They're different things. The fed funds rates is the actual rate money is being lent at. The fed can't "set" that. They use tools to influence it. The IOR rate is a tool the current tool the fed uses to set a ceiling on the fed funds rate (along with the reverse repo which sets the floor). Before 2008 they expanded/contracted reserves to control it.
You obviously have not followed my comments for very long son. I do not have the energy to give you the normal econ 101 that many here have benefited from in the past (most are road kill now. Bulls and bears). But I am curious of what you mean by M2 adjusted and how exactly you adjusted it (the math) and the source you used for M2. I will give you a bit of a taste, though. The market rallied today out of rate increase fatique. The very fact that JPow said nothing different than he has for months was enough to cause a rally like this should scare the heck out of ya as a longer term bull. As should the fact that bad news is good news. In the past it kinda of made sense because the FED really was there to rescue the market. They aren't this time. JPow just told you that. Gonna take alot of pain for the FED to cut rates. Including pain in the equitiy markets. Economics is far from a science, but economic forces are very real. Forget about money supply son. You are looking backwards. Think about fundamental economic forces instead. I have called for a 5% terminal rate since early this year. I was ridiculed on here. Yet now pausing at 5% is cause for jubilation! Well, a 5% fed funds rate is going to bite and bite hard. It implies an AAA borrowing rare of around 8%. That alone is going to kill the earnings of ALL publicly traded company on earth. Those pristine balance sheets you hear about? Pick any company you want, and then go take a gander at that balance sheet. You will see a shit ton of debt. That debt will have to be rolled over. It will have a huge effect, dude. Have you seen the data on what the IOR is "costing" the Fed reserve? Incredible, actually. And we are only just now at 3.75%. Do the math on 5%. Do the compounding over a few years. And that is just for bank reserves! Now ponder the Federal budget deficit. Ponder State government borrowing costs. Your local cities borrowing cost. The above diatribe is just about the unarguable effects from going to "just" 5% for the foreseeable future. There is so much more. But yeah. I'll take a gander at M2 (I check it often son). You use that brain God gave you and ponder what is going to be the actual consequences of JPow's vision. You bulls are soooo cute. I just want to hug you. Love, Dad. ***
Also people need to pay attention to the actual interest rates. The RRP (the minimum interest rate) is at 3.8% and the IOR is 3.9%. If he raises .5% to 4.3% and 4.4%, sure.... that sounds crazy. The treasury market is already not listening to him though. 10Y is at 3.69% and 30Y at 3.73% last I checked, far below his floor he already set. Long-term rates are going down in real life when Powell jawbones he is going up. The Fed doesn't have control of this thing (probably never did), and he needs an excuse to tell everyone why he needs to lower rates soon before everyone catches on the Fed is just a figurehead.
That use to be dominate but QE and IOER changed all that. Banks can now make significant money by NOT lending. Plus they really are not valued as highly as they once were. This move is entirely tied to the .75% move yesterday, it'snot like banks are highly valued. Google IOER. Actually it was just renamed to IOR.
Yes, the Federal Reserve pays interest on reserves (IOR). It's an important tool of monetary policy, and the rate of interest paid tends to be the a bit below the fed funds rate. The Fed has been doing this for quite some time, now. This is to reimburse the banks for the opportunity cost of leaving excess reserves with the Fed, or so says the Fed, anyway.
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ROME (AP) — Pope Francis on Tuesday imposed an Oct. 1 deadline for all Holy See offices and Vatican-linked institutions to deposit their assets with the Vatican bank. Francis’ decree follows his decision earlier this year to entrust management of all Vatican assets to one office — the patrimony office known as APSA — in a bid to end decades of mismanagement that culminated with a scandal over a 350 million-euro investment in a London property. Ten people, including former Vatican officials and external brokers, are on trial in the Vatican tribunal on finance-related charges related to the deal. The Vatican’s economy ministry in July issued a new investment policy requiring all Vatican departments to transfer their assets and investments to APSA via its accounts at the Vatican bank, known as the Institute for Religious Works, or IOR. No specific deadline was given, but the decree published Tuesday says all assets must be transferred by Sept. 30. The need for a new decree imposing a fixed deadline and stressing there were no exceptions to the regulation suggests some offices or institutions were hoping to keep external accounts or investments. The Vatican bank has long been mired in scandal but has spent the past decade cleaning up its books and ridding itself of its reputation as an offshore tax haven. Years of reform have slimmed down its client list to Vatican offices, employees, religious congregations and embassies. It currently has some 5.1 billion euros in assets under management and reported 18 million euros in profits last year. The bank had previously donated 50 million euros a year of its profits to the pope to pay for the Vatican bureaucracy, but profits have fallen in recent years.
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Also just to clarify reverse repo, it’s a short term loan of a US Treasury in exchange for reserves. So it allows blanks to capture more interest on their excess reserves vs IOR but they don’t really lose any liquidity
Yeah bit it increased the fed funds rate by 75 bp..did it decrease the IOR?
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Lol they’re not unwinding anything They’re just increasing the amount they pay IOR That means more brrr
Yah wang was in last QT with Fed so he definitely is quite insightful and explain things quite nicely with Fed perspective. Yah the Fed really fucked up, i mean thats like fucking up 1+1=2 in maths class😂. They thought 1+1=0. Deflation. Yah they are being watched very closely. I have never seen Fed getting this much importance in financial markets. Usually its government and their policies. But now its just all Fed. This just tells us how powerful the Fed has become. And that basically shifted this stance to being more political rather than lets say focusing on bank solvency. Yes they do stress test but i really think if we head to a depression there's definitely going to be the case of something breaks. Even Zoltan the oracle of repo market is scared of bank reserves getting depleted too fast. First from Fed QT and money going into rrp and second from bank deposits to mmf fund and then to rrp. A double whammy. I observed latest movement of bank. What now they are doing is instead of getting IOR which is basically higher than rrp they too are parking in rrp because their sh9t as scared and that is something literally no one is talking about. As for voldemort asset. Cmon the one you shall not named. Its a reference from harry potter pointing to asset class if i name here i might get banned.😅
Thanks for the correction friend. Im aware the fed is seemingly trying to leave behind Required Reserve Rations for Interest on Reserve. https://www.federalreserve.gov/monetarypolicy/reserve-balances.htm But this post I was trying to make accessible, which is why I chose to go with RRR instead of IOR. It makes explaining the MME much easier. If I’m still wrong I’m sorry, it’s very late here where I live. If you see any more mistakes I will take a look tomorrow.
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Raising interest rates might not cause deflationary pressures because of how the financial plumbing has been changed post-GFC including IOR, RRP, and other Fed facilities. For more technical details consider reading: [https://fedguy.com/inflationary-hikes/](https://fedguy.com/inflationary-hikes/) or [https://www.youtube.com/watch?v=JO02vK5t\_hM](https://www.youtube.com/watch?v=JO02vK5t_hM) The only sure thing that raising rates will do is reduce the risk appetite of investors and therefore downturn in equities, solving inflation is questionable especially primarily non-demand driven inflation.
Yes that's correct, but my point was asking "why". Never claimed it was a lack of liquidity in the repo market, but it demonstrates a lack of liquidity on-hand by member institutions. As the overnight paper comes into higher demand, it makes sense for the Fed to raise IOR and IOER to inject that capital in order to maintain its benchmark rate. I agree with your point on the risk premium. Outside of the bond market, in the equity markets as well. If the risk free rate at which securities ought to be discounted are still close to 0, all else being equal, the equity risk premium is artificially lower given this excess liquidity.
Nie tanks! For who may read: [FED increased ON RRP and IOR by 0.05%](https://www.google.com/amp/s/mobile.reuters.com/article/amp/idUSKCN2DS27C)
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From the perspective of RRP counter-parties, RRP is, first and foremost, a special collateralized savings account at NY Fed, through which they get paid at RRP rate if they could not find a better rate in the money market (i.e. 0-1Y bond market, loosely speaking). MMFs and GSEs use RRP for this purpose only. Banks, however, use RRP differently. Banks are paid IOR on bank reserves. Since IOR has always been 10-15bps higher than RRP rates, banks have no incentive to use RRP for yields. Banks, especially their primary dealer arms, used to use RRP to acquire additional UST collaterals, which used to be profitable for eurodollar rehypothecation. However, this was completely changed in Jan 2018, when Basel III banking regulations were 100% implemented. New liquidity requirement (LCR) and capital requirements (SLR, TLAC, GSIB surcharges etc) made RRP unattractive because it is costly from both liquidity and balance-sheet perspective. As a result, banks' usage of RRP, either by their commercial banking arms (denoted as Banks) or by their dealer-broker arms (denoted as Primary Dealers), has dropped to nearly zero soon after January 2018, as shown in the chart below. What does this mean?
Cash is not the same thing as reserves. Banks need to hold reserves to back up any deposits that they are liable to meet withdrawals for, thus any short-term and accessible checking accounts + since recently savings account (which is why M1 shot up but M2 only moderately increased). Since banks aren't doing that much lending, those extra reserves, that would otherwise have gone to required reserves if banks had lent out money, are piling up since they can just get free positive interest. The cash a bank would get from another participant is not Fed reserves, thus they cannot earn IOER on it. Remember, reserves constitute base money (+ coins and paper) and only banks have access to them and trade them among each other in the Fed funds market. This is what the Fed targets when you hear they are "setting rates at x%", which is the rate at which banks borrow reserves from each other. They try to make reserves as scarce or abundant as needed so banks would borrow from each other at within this band. If IOER > IOR, then banks that hold more reserves don't have an incentive to lend out excess reserves if the rate they're getting adjusted credit risk of the marginal loan is less than IOER since they wouldn't lend reserves to other banks. This gets complicated with you and I paying each other with cash and the banks have to settle daily transactions with reserves, that's why this market is always active (if I pay you, what actually happens is my bank loses a deposit and your bank gains a deposit > your bank needs to have reserves to back this deposit etc). Since everyone is flush with cash, which doesn't earn interest, the relative price of holding cash has been dropping towards, and intermittently through, 0.