As a matter of fact, since the JPY Carry Trade forced unwinding started to bite, the BOE has been busy injecting liquidity into the system (THE JPY CARRY TRADE IMPLOSION CONTAGION IS ALREADY SPREADING INTO THE UK) with the BOE Short term repo OMO growing from zero to ~40m GBP in a few months till now.
Please have a look at the chart below from 2022 to 2023 (when the latest banking crisis surfaced in all its beauty). As you can easily notice, while large banks’ deposits only decreased slightly overall (likely the reason why it took a while for the MSM and furus to realize a crisis was brewing), cash held at large US commercial banks part of the Federal Reserve system was collapsing in a clear sign of a liquidity crisis.
You can see the situation started to improve exactly at the moment the FED BTFP became operational, so no, the problems were not only within US regional banks contrary to what all the Central Bankers, Nobel prizes, and public officials were claiming. Credit Suisse’s emergency bailout was another proof of that, but still greatly ignored.
Now, please have a look at what’s happening today despite Jerome Burns just declaring the FED cut rates by 50bp despite everything being awesome in the economy and in the financial system
What’s even more interesting is that Cash is being moved from Large to Small banks in equal proportions even if there has not been a similar shift in deposits. What does this mean? Clearly, customers still trust large banks, but clearly, smaller bank treasurers aren’t trusting them in the same way and are shifting cash back into their books.
At this point, I hope we all agree there are liquidity issues within Large US Banks with Bank of America the number one suspect at the moment. Why? Here is what I warned about two months ago and since then Warren Buffett sold $8bn USD worth of BAC shares and is just 0.1% away from going below the 10% ownership threshold after which he will not be required to inform the market promptly of any further sale (so likely he is going to cut his stake at a faster pace)
Putting all together, it is undeniable that there are increasing liquidity issues in both the US and the UK, but no worries next Friday when banks start reporting there will be little chance that they will confirm this to the public. Especially Bank of America which is expected to report its Q3-2024 on the 15th of October. Furthermore, we are one month away from US elections so do not expect the SEC or the FED to take any action to tackle this problem because the political embarrassment for the incumbent US administration seeking re-election will significantly undermine their effort to make everything look awesome in both the economy and the financial system. Personally, I do not expect a 2008-style “Lehman moment” before elections either, but there is always a small probability that things go out of control all of a sudden if fears quickly spread among financial institutions.
