In the post, ” The Fed and The Banks“, I had three different graphs showing the activity level between the Fed and its member banks. Since the post on October 19, the trend continues to be the same.
In October, the total borrowing of depository institutions from the Fed was reaching $300 Billion. It’s now reaching about $700 billion ( link). It’s not a surprise given the loads of money that the Fed is dumping into the market.
In mid October, the amount of excess reserves held by the banks was about $60 billion. If you look at the updated graph in this link, it’s at $260 billion.
So what does all this mean ?
Well, the point of the Fed pumping money into the banks is so that they can lend and create liquidity; however, it seems like banks still continue to just hoard the cash. Therefore, it is obvious that the Fed’s plans are not working very well.
Finally, the third graph shows the amount of non-borrowed reserves of depository Institutions. In October it was reaching -$200 billion, meaning that all the reserves that banks were holding was all debt and not real earnings. As you can see it in this link, it is now reaching -$350 billion. Therefore, banks are using more and more debt as collateral for their operations.
Overall, this shows that the same trend continues and that it is likely to continue in this course. So, market bottom ? I don’t think so.
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