Foreign banks are profiting from no risk ‘spread-pocketing’ via Fed interest rate policies… and U.S. taxpayers are ‘footing the bill.’
ZeroHedge 9-30-14 excerpts:
“Foreign Banks ‘pocket a spread’ by borrowing cheaply and parking funds at the Federal Reserve…. according to the Wall Street Journal: “Fed Rate Policies Aid Foreign Banks: Lenders Pocket a Spread by Borrowing Cheaply, Parking Funds at Central Bank”
Though small in relation to their overall revenues, interest payments from the Fed have been a source of virtually risk-free returns for foreign banks. Large holders of Fed reserves include Deutsche Bank, UBS AG, Bank of China and Bank of Tokyo-Mitsubishi UFJ, according to bank regulatory filings. U.S. banks including J.P. Morgan Chase, Wells Fargo and Bank of America Corp. are also big recipients of Fed interest payments, according to the filings.
“It is a small transfer from U.S. taxpayers to foreign taxpayers,” said Joseph Gagnon, a former Fed economist at the Peterson Institute for International Economics. The transfer, he added, was a side effect of Fed policy, not a goal.
Behind the payments is a complex interplay between new government regulatory policies and new methods the Fed has developed to control short-term interest rates.
The Fed has pumped nearly $3 trillion into the banking system since the 2008 financial crisis, increasing banks’ reserves, in efforts to stabilize markets and boost economic growth.
Since 2008, it has paid banks interest of 0.25% on those reserves. The Fed affirmed this month that the rate it pays on reserves will be the primary tool it uses to raise short-term borrowing costs from near zero when the time comes, likely next year.
“The fact is that the Fed is going to be paying very large amounts of interest to banks,” said William Poole, a senior fellow at the Cato Institute and former president of the Federal Reserve Bank of St. Louis. “It’s highly likely that some politicians will notice that and given the proclivity of some politicians anyway to demagogue issues, the Fed is going to have some political explaining to do.”
Since 2009, foreign banks have earned roughly $5 billion by borrowing dollars cheaply, often at less than 0.10%, in short-term funding markets and depositing those funds at the Fed for 0.25%, according to the Journal analysis. That estimate doesn’t take into account the costs of raising money through other means, overhead and taxes, which affect net income.
But don’t blame the banks – they are merely doing what the Fed is encouraging them to do. And after all who wouldn’t collect billions in risk free cash?”
So here we have the U.S. Federal Reserve providing risk free carry trades to foreign banks, along with major U.S. commercial banks – printing up ‘free money’ currency to hand as a free gift to these global commercial banks… and U.S. taxpayers ‘pick up the tab’ in the form of a drain on future purchasing power of the U.S. Dollar.
Again, “since 2009, foreign banks have earned roughly $5 billion by borrowing dollars cheaply, often at less than 0.10%, in short-term funding markets and depositing those funds at the Fed for 0.25%…”
ARE YOU KIDDING ME….?
It is time for U.S. citizens to get equal treatment from the Federal Reserve – the same access to liquidity that has been given to “Deutsche Bank, UBS AG, Bank of China and Bank of Tokyo-Mitsubishi UFJ, according to bank regulatory filings. U.S. banks including J.P. Morgan Chase, Wells Fargo and Bank of America Corp.”
The Leviticus 25 Plan provides the mechanism for this equal access to liquidity for U.S. citizens.
The Leviticus 25 Plan 2015 – The $70,000 Solution September 2014 – Updated version: The Leviticus 25 Plan 2015 (560)