Bank Term Funding Program Is Ending
March 7th, 2024
Banking Term Funding Program is a program to give short-term funding to depository institutions to make sure that they
have ability to meet the needs of all their depositors. In other words, to make sure banks have enough money if smaller
or larger scale bank-run occurs. This program was created to help distressed banks in the spring of 2023. Then for
example Silicon Valley Bank failed and people started to question is their money safe in other much smaller banks than
Silicon Valley Bank.
The need for this program peaked in the week starting Mar 20, 2023 with about $32 billion worth of
funding given to banks and other depository institutions during that week. Although the need for this program quickly ran out and hasn't
basically been needed since the June 2023, smaller spikes in need has occurred during and after December 2023. Peaking
in the week starting Jan 8, 2024 with about $12 billion dollars of funding given to banks during that week. So there has
still been distressed banks and other depository institutions after the turmoil of spring 2023.
Federal Reserve Board announced on their
Jan 24, 2024 press release that the Banking Term Funding Program would "cease making new loans as scheduled on March 11" 2024.
After that distressed banks and other depository institutions would need to resolve their needs for money by selling their
assets. These assets are mostly Treasury Bills and Bonds, and Mortgage Backed Securities. And in the end in case of a bank
failure the deposits are insured by Federal Deposits Insurance Corporation
which has money to pay-out few percentage of all money deposited in the insured banks and other depository institutions.
The recent spikes in the usage of this program has mostly been because bigger banks have used this program to loan money
with lower interest rate than the shorter-term funding rates. Also other terms of these loans have been favorable to banks
than their usual funding sources. This has made possible for banks to loan money cheaper and then loan it forward with higher
interest rates and make profit from the difference. “As the BTFP rate has fallen below shorter-term funding rates the program
has seen increased borrowing from banks, presumably due to the favorability of the terms,” said Michael Feroli, JPMorgan’s chief U.S. economist.
References
Edits
- Mar 8, 2024 - Added quote from Michael Feroli about banks using BTFP for arbitrage
What the Supply Chains Looks Like in Future?
March 2nd, 2024
What Is A Supply Chain
Let's say you are building something, and you need an M10 nut. You might not have it at your home in your storage.
Instead, you go to a hardware store to buy it. First link in your supply chain for M10 nut is your own storage room.
The second one is the hardware store. Here ends the supply chain that is visible for you.
Since the hardware store probably didn't manufacture the nut you bought from there,
it most likely came from a wholesaler who bought it from either bigger wholesaler or from a nut making factory.
Sometimes these chains for items are very long and involve shipping by sea, land, or air.
Many things happen in each step of the chain. So they are also vulnerable to multiple things going wrong.
Also supply chains of food items are now longer than ever, thanks to globalization. It's not uncommon to see e.g.
caught fish flown to China for processing and then back to the originating country as a final product sold to customers.
For a long time salmon caught in north-western parts of the USA has been frozen and then flown to China for processing
and then back again to the USA or other western countries. All the logistics of this operation is a fine-honed machine
that needs to work to the exact detail because the food items transported and handled are highly perishable. These
systems involve complex IT systems to get it to work properly.
What happens if e.g. ransomware attack or other kind of cyberattack messes this system. Well most likely the problems
wouldn't show to the customers right away but if many cyberattacks occur in multiple places of this highly efficient
system then the consequences are that you the customer don't get food to your table or the food is more expensive.
Threats To Supply Chains
There can be multiple threats to supply chains. One of them we have already experienced in the form of the pandemic.
During the pandemic supply chains were messed up because lock-downs. People couldn't go out from their homes to their
workplaces in factories and offices. Logistics was somewhat hindered because of restriction on meeting people. Another
threat to supply chains are the aforementioned ransomware and cyberattacks. Computer-based systems just stopping from
working and telecommunication stopped due to containing the spreading of the problem. Third threat is conflicts and wars
like the situation at the red sea which is mostly hindering the usage of Suez canal and therefore making the travel time
ships back and forth from Asia to Europe much longer. All of these things can separate you from your daily meal or
getting the crucial M10 nut to fix your car or farming equipment.
Fixes To The Problem
Prepare, prepare, prepare. Possibility for a global long-lasting supply chain problem is still quite low even though it
has risen in recent years. Best way to fix these problems is to prepare for the situation that you might not always have
everything available, and it might take long times and/or cost a lot to acquire.
Grow Your Own Food
One way to help make sure you always have something to eat is to grow your own food. In more rural areas it's quite
common to have a vegetable garden, but it can also be done in urban areas. This can be achieved through
urban agriculture which is supported even by
US Government through USDA. Of course, it's hard to grow and harvest all of your
food especially in urban surroundings, but also the small things count in this issue.
Buy Used Items
For tools and gadgets you should buy and use old used items. They are already transported to your local area and are
available in-case previous owner is willing to sell it. You don't have to wait some tool to be transported from a
factory in China. Use what is already near you.
Old people usually have hoards of old stuff because they were used to this fact that everything isn't always available.
When something broke they first fixed it multiple times and when it was unfixable they didn't throw it away the stored
it somewhere or parted it and stored the parts somewhere. When something else broke they used parts from that old thing
to fix it.
Buy Better Quality Items
If you don't want to buy some gadget every year after the old one broke down and is unfixable, buy better quality items.
Usually items of better quality last longer and are easier to fix. But remember, price doesn't equal quality! Pricier
items are sometimes done with less quality than the cheaper ones to maximize profit.
Store Non-Perishable Items
One way to prepare for supply chain hiccups is to store larger quantities of the everyday items you use. Use should buy more
of the non-perishable food items that you use daily, so you have bigger stock for a rainy-day. Rotate that stock
constantly, and you never have expired items in your stock. This way if for some reason you can't purchase these items
for longer periods than normal, you are not in a emergency. But remember to replenish the items when they are again
available or consider using other similar things.
Future Of The Supply Chain
In the future supply chains will become shorter, maybe not as short as they were in the ancient times but definitely
shorter than they were at the peak of globalism. The things that can be more easily produced by individual people are
going to be produced locally. This mostly means food and simple tools. More complex things like computers are still going
to be manufactured in factories far away, but also their supply chains are going to be shorter. The silicon used in
processors are going to be recycled and local sources used. It also means that the more complex items are going to be
more expensive. Also people are going to start help each other out in neighborhood level and start trading goods and favors.
References
