Thursday, February 1, 2024

That SECU $5 Billion Bank Term Funding Loan: Bellying Up To The Public Trough - Whole Hawg? ... amid the snarl of comments, a couple of questions about that $5 billion SECU has borrowed from the Federal Reserve.

✅ "Can you clarify the borrowing over 4th quarter 2023? Was the $5b different than previous months? Has SECU borrowed like that in years past? Basically is my paycheck backed by loan proceeds? Thank you for explaining to a non accountant employee. "

"Other than trying to make the numbers look better, what would be the other reason they would take those loans from the Fed? I’m trying to play devils advocate and figure out the “excuse”. "

What Is the Bank Term Funding Program? (from Investopedia)

"The Bank Term Funding Program (BTFP) is an emergency lending program created by the Federal Reserve  in March 2023 to provide emergency liquidity to U.S. depository institutions. It was established in response to the sudden bank failures of Signature Bank and Silicon Valley Bank which were the largest such collapses since the 2008 financial crisis. [link to Fed for program details]" The BTFP was intended to help banks and credit unions which got into trouble due to rising interest rates - nothing wrong with trying to help out, to avoid a costly, potential bailout.

Think most of you know that deposits in banks and credit unions are generally insured up to $250,000 by the Federal government via the Federal Reserve, the FDIC, and NCUA (which is exclusively for credit unions). The standing, not-so-funny joke is that banks are insured - and periodically owned - by the Federal government (you and me.) The reason for bank failures is always greed, mismanagement, and greed - and also greed. The last major banking collapse was in 2008, but the Federal Reserve became concerned once again in March, 2023 and launched the BTFP, just in case.

The Fed set the emergency program up so that financial institutions could borrow at highly favorable, below market rates. Some institutions, like SECU, found that they could borrow at those low emergency rates and then turn right around and reinvest the unneeded loan at higher rates - profiteering off the Federal Reserve! Kinda warms your heart and makes you proud to be an American and an SECU member, doesn't it. 

The WSJ noted: "The Fed Launched a Bank Rescue Program Last Year. Now, Banks [and SECU] Are Gaming It

The generous terms helped drive use of the program, as usage ground steadily higher despite no real signs of market distress. Loans outstanding as of Jan. 17 stood at $161.5 billion, according to Fed data. Steven Kelly, associate director of research at the Yale School of Management's Program on Financial Stability said, he was certain the Federal Reserve "was not happy" with  the usage of the BTFP

There are very few " Thou Shall Not Commandments" in finance, but there is one for sure

"Don't Fight The Fed"... or do anything to make them "not happy"!

As with risk-based lending,  SECU is just "profiteering" by taking advantage of some folks