Hit With Big Withdrawals, Fed Sells Assets, Borrows Cash

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The Fed was hit with withdrawals of $83.3 billion last Wednesday, the largest withdrawals from its deposit accounts that were not associated with quarterly tax payments since February 2009, and $7 billion of that was the net cash transferred to the US Treasury from its note and bond sales less outlays.

The Fed still had to meet the other $76 billion. These transactions were revealed in the Fed’s weekly H.4.1 report. The Fed was apparently forced to take extraordinary measures to fund these withdrawals. These included the outright sale of nearly $24 billion in its Treasury note and bond holdings from the System Open Market Account (SOMA). As a result, the Fed’s SOMA fell to $2.611 trillion, some $43 billion below the Fed’s stated target of $2.654 trillion.

Prior to last week, it had not strayed from the target by more than $7 billion since June. The Fed’s action was not only a direct contradiction of its stated policy, but it was done without warning or explanation. It ran counter to Federal Reserve Chairman Ben Bernanke’s penchant for telegraphing every important move the Fed makes so that the banking/speculating organizations can front-run it. The Fed took another unusual and virtually unprecedented action to fund these massive withdrawals. It borrowed $43 billion from foreign central banks (FCBs) through reverse repurchase agreements (reverse repos, or RRPs).
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http://www.minyanville.com/business...pen-market-foreign-central/11/7/2011/id/37785

 

[DSAbug]

What are the implications of this in your opinion?

 

[pmbug]

The banks are scrambling for liquidity if they are withdrawing funds they have on account with the Fed. MF Global, Jefferies, Euro contagion, bank transfer day, etc. - who knows what the exact driver is. Maybe a confluence of many factors. Bottom line - the banks are under stress.

That's my top of the head impression.