The Bank Term Funding Program (BTFP) introduced over the weekend is a discount window on steroids. And like many steroids, the short-term benefits could come with consequences down the road.
“This is aimed directly at the heart of the problem, which is that from a liquidity standpoint, you have a ton of banks sitting on underwater portfolios,” Financial analyst Josh Steiner explains on this clip from The Call @ Hedgeye. “That’s getting less bad as rates have come down significantly, but nevertheless, that position is still tenuous for many banks. This is obviously designed to significantly ease these liquidity dynamics.”
While the BTFP may help temporarily ease banks’ liquidity problems, Steiner says it doesn’t address the broader, underlying issues.
“We’ve been in this deteriorating Quad 4 credit condition set for a while,” Steiner explains. “Things were just starting to get interesting on that front, then you intersperse that backdrop with this very short-term liquidity crisis that triggered significant bank collapses.”