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Discussing the Possible End of QT With One Who Worked at the Fed (Szn 5, Ep 7)

With Jake Schurmeier, Harbor Capital

Jake Schurmeier of Harbor Capital Management joins the podcast to discuss his experience at the Federal Reserve Bank of New York, which overlapped with a full monetary policy cycle, and what this may tell us about future Fed policy — especially in light of the events surrounding Silicon Valley Bank and Signature Bank of New York.

Content Highlights

  • The guest spent several years at the Federal Reserve Bank of New York’s open markets trading desk, where he was responsible for implementing monetary policy and monitoring the treasury market (3:41);
  • In this role he experienced the whole life cycle of quantitative tightening to quantitative easing, concluding with the liquidity injections that accompanied the Covid pandemic (5:13);
  • Chances are “pretty high” that the Fed reins in quantitative tightening, or QT, in light of the events around Silicon Valley Bank (SIVB) and Signature Bank of New York (SBNY). A lot of it depends on the uptake of the Bank Term Financing Program, or BTFP, the new lending facility (6:49);
  • Can these measures save the business model of regional banks? (10:26);
  • The possibility of moral hazard introduced by regulators (12:57);
  • Where does this leave interest rate policy? Fifty basis points is probably off the table, but a 25bps raise is certainly in the offing… (14:10)
  • In general, what kinds of catalysts will the Fed be looking for to shift from QT to QE? (16:20);
  • Was there ever any talk of negative interest rates? Did the Fed ever have discussions about buying stocks (21:00);
  • Background on the guest (25:33);
  • The Fed’s purchases of mortgage-backed securities was in retrospect unnecessary on the scale and duration with which it happened during Covid (28:24);
  • For a quasi-government organization, the Fed acts quite quickly. Faster than corporations. A look inside the Fed’s decision-making process (32:05);
  • Yes, Fed officials and employees are required to disclose their stock transactions (37:29).

Not investment advice.

For more information on the guest, visit

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The Trouble Facing Regional Banks

The following is an aggregation of thoughts on the burgeoning banking crisis, as posted in the Daily Contrarian. Subscribe to receive the briefing and accompanying podcast each market day morning.

Last weekend saw the dramatic rescue of Silicon Valley National Bank (SIVB) and Signature Bank of New York (SBNY). The market reaction was drastic, with investors punishing regional bank stocks and today shifting their focus to European banks. Credit Suisse (CS) dropped to an all-time low after its largest investor ruled out further capital infusions.

Unfortunately, the underlying issue facing banks in the US at least remains unresolved. Banks still hold large amounts of held-to-maturity, or HTM, assets. These are US Treasuries and other government bonds that don’t need to be marked-to-market if they are (you guessed it) held to maturity. The problem is if these assets need to be sold, in which case they do need to be marked-to-market. If that happens it leaves banks with a huge hole in their balance sheets from the ensuing write down. See Silicon Valley Bank, which tried to plug their hole with a capital raise. Didn’t work. This issue of HTMs has been known for some time. Here’s a Wall Street Journal piece from November.

By closing Signature Bank, regulators presumably removed the domino that they believed would be the next to fall. The Fed for its part set up an emergency lending program called the Bank Term Funding Program, or BTFP, to shore up liquidity in the financing system. The question now is how effective these measures will be. There is reason to believe they should be at least somewhat effective, according to our guest on this week’s podcast.

That’s great, but then what about the business viability of these regional banks? If depositors are worried about their money it stands to reason that they will move it to a larger financial institution. How can smaller regional banks compete with these juggernauts, especially if they are faced with larger regulatory burdens as can be expected? At best, their margins will be severely pressured. At worst they will have to deal with a run on their deposits.

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