{"id":4652,"date":"2023-03-17T12:42:06","date_gmt":"2023-03-17T12:42:06","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=4652"},"modified":"2025-03-27T15:50:39","modified_gmt":"2025-03-27T15:50:39","slug":"emergency-lending-isnt-monetary-easing","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=4652","title":{"rendered":"Emergency lending isn&#8217;t monetary easing"},"content":{"rendered":"<p>Lending by the Fed to depository institutions jumped from $15 billion&nbsp;to $318 billion&nbsp;between 8 and 15 March&nbsp;&#8211; see chart 1 (red line). The emergency loans &ndash; mostly via the discount window and via the FDIC rather than under the new Bank Term Funding Program &ndash; were the main driver of a $441 billion surge in banks&rsquo; reserves at the Fed.&nbsp;<\/p>\n<p><strong>Chart 1<\/strong>&nbsp;<\/p>\n<p><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" src=\"https:\/\/newstar.squarespace.com\/storage\/170323c1.png?__SQUARESPACE_CACHEVERSION=1679058023054\" alt=\"\" \/><\/span><\/span><\/p>\n<p>These developments do <span style=\"text-decoration: underline;\">not<\/span> represent an easing of monetary conditions, except relative to a much tighter baseline that would have resulted from the Fed failing to accommodate increased demand for monetary base due to the banking crisis.&nbsp;<\/p>\n<ul>\n<li>\n<p><span>Unlike QE, Fed lending to the banking system has no direct impact on money stock measures (i.e. money held by households and non-bank firms). (QE has an impact to the extent that securities are purchased from non-banks.)&nbsp;<\/span><\/p>\n<\/li>\n<\/ul>\n<ul>\n<li>\n<p><span>Unlike QE, the reserves rise is temporary and will reverse if the crisis abates and lending is repaid.&nbsp;<\/span><\/p>\n<\/li>\n<\/ul>\n<ul>\n<li>\n<p><span>The emergency \/ temporary nature of the lending \/ reserves rise implies no incentive for banks currently experiencing inflows to expand assets. (QE can have secondary monetary effects by encouraging lending \/ securities purchases.)&nbsp;<\/span><\/p>\n<\/li>\n<\/ul>\n<p>Resolution of the crisis requires the authorities to arrest broad money contraction. A run-down of the Treasury&rsquo;s cash balance at the Fed won&rsquo;t be sufficient; QT needs to be suspended \/ reversed to offset a cutback in lending by troubled banks. Consideration should also be given to limiting the drain of deposits to money funds, e.g. by capping their access to Fed&rsquo;s overnight reverse repo facility.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Lending by the Fed to depository institutions jumped from $15 billion&nbsp;to $318 billion&nbsp;between 8 and 15 March&nbsp;&#8211; see chart 1 (red line). The emergency loans &ndash; mostly via the discount window and via the FDIC rather than under the new Bank Term Funding Program &ndash; were the main driver of a $441 billion surge in [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-4652","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/4652","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4652"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/4652\/revisions"}],"predecessor-version":[{"id":6961,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/4652\/revisions\/6961"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4652"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4652"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4652"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}