Here is the bank liquidity chart, also known as the reverse repo market. This is the excess deposits on bank balance sheets that are not invested in bonds or loans.
Both bonds and loans are illiquid, meaning they have documented maturities. If a bank has to access liquidity to pay deposits that are leaving the bank, and they have none, like when this chart reaches $0, they have to offload loans or bond investments. If they offload them at a loss, the banks equity is reduced. If equity reductions trip capital ratios, the dominos begin to fall upon each other. Get it?
At current rates, EVERY LOAN AND BOND originated from 2008-2018 and 2020-mid 2022 is trading at a loss, right now. Thats a very large percentage of bank balance sheets.
I haven't looked, but I bet JPM, GS, BAC, C, and other mega banks are stockpiling cash to buy some regionals here when liquidity goes dry in April and rates don't drop till Summer.
https://fred.stlouisfed.org/series/RRPONTSYD/
Both bonds and loans are illiquid, meaning they have documented maturities. If a bank has to access liquidity to pay deposits that are leaving the bank, and they have none, like when this chart reaches $0, they have to offload loans or bond investments. If they offload them at a loss, the banks equity is reduced. If equity reductions trip capital ratios, the dominos begin to fall upon each other. Get it?
At current rates, EVERY LOAN AND BOND originated from 2008-2018 and 2020-mid 2022 is trading at a loss, right now. Thats a very large percentage of bank balance sheets.
I haven't looked, but I bet JPM, GS, BAC, C, and other mega banks are stockpiling cash to buy some regionals here when liquidity goes dry in April and rates don't drop till Summer.
https://fred.stlouisfed.org/series/RRPONTSYD/