How did we get here? A “map” of the Fed’s balance sheet’s history

June 14, 2013 Leave a comment

SATURDAY, JUNE 8, 2013

How did we get here? A “map” of the Fed’s balance sheet’s history

SoberLook.com

Some in the mass media continue to be confused about the historical trajectory of the Fed’s balance sheet. People have trouble distinguishing between the liquidity facilities provided by the central bank and the various monetary expansion activities. Here is a historical “map” to show how we got here.

Feds Balance sheet1. The Fed launches the Term Auction Facility (TAF) to replace term interbank funding and commercial paper for banks who started having trouble rolling short-term debt. The Central Bank Liquidity Swap Facility was also launched at the time to provide dollars to other central banks.

2. Increase in TAF demand (it’s no longer taboo to use the facility) and increase in the Central Bank Liquidity Swap Facility as foreign banks start having trouble raising dollars to fund their dollar assets.

3. The Fed provides Bear Stearns (Maiden Lane) funding to support the purchase of Bear by JPMorgan.

4. All hell breaks loose as the Fed is forced to ramp up TAF and the Central Bank Liquidity Swap Facility (as foreign banks desperately need dollars). The Fed also launches the Commercial Paper Funding Facility (CPFF). Among other reasons, CPFF was meant to help corporations like GE Capital, who relied heavily on commercial paper funding and were beginning to have trouble rolling debt.

5. Around the same time as #4, AIG failed. The Fed responded with Maiden Lane II (see post), Maiden Lane III (see post), as well as direct funding for AIG. This was the one move by the central bank that made Bernanke especially angry.

6. QE1 (treasuries and agency MBS). Shortly after, the TALF program was launched (relatively small impact to the balance sheet).

7. QE2 (treasuries).

8. Central Bank Liquidity Swap Facility facility picks up again as the various Eurozone banks lose their ability to roll dollar commercial paper (US money market funds cut exposure) – see posts here and here.

9. QE3 (treasuries and agency MBS).

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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