Coppola Comment

  As the world reeled in shock at the sudden collapse of Silicon Valley Bank (SVB), another bank quietly went under. On Sunday 12th March, the U.S. Treasury, Federal Reserve and FDIC announced that all SVB depositors, whether insured or not, would have access to their funds from Monday. And then they added:  We are also announcing a similar systemic risk exception for Signature Bank, New York, which was closed today by its state chartering authority. Signature Bank NY's state chartering authority was the New York State Department of Financial Services (NY DFS). It posted this on its website :  On Sunday, March 12, 2023, the New York State Department of Financial Services (DFS) took possession of Signature Bank in order to protect depositors. All depositors will be made whole.  DFS has appointed the Federal Deposit Insurance Corporation (FDIC) as receiver, and the FDIC has transferred all of the deposits and substantially all of the assets of Signature Bank to Sig...

  It's been evident for some years now that those selling risky crypto products to risk-averse investors like to have federal branding on their snake oil. Tether claimed to have 100% actual dollar backing for its stablecoin. Various exchanges and platforms claimed that customer deposits were FDIC insured. The New York Attorney General showed that Tether didn't have 100% dollar backing or anything like it. And now the FDIC has sent cease & desist orders to  FTX , Voyager and several other crypto companies , it has become dangerous even to mention FDIC insurance in marketing material.  But that doesn't meant they've given up on the quest for a credible claim to Federal backing. The new Holy Grail is gaining access to Federal Reserve funding without becoming a licensed bank. Accordingt to analysts at Barclays, Circle, the issuer of the USDC stablecoin widely regarded in crypto markets as a "safe" dollar equivalent, may have found a way:  This screenshot com...

Tether has issued what it calls a “ breakdown of its reserves ”. It actually consists of two pie charts. Here they are: Seriously, this is all Tether has seen fit to reveal.  Furthermore, the pie charts only purport to show the breakdown of Tether’s reserves on the 31st March 2021. We do not know whether Tether’s reserves still have the same composition now.  Nonetheless, the crypto world took these charts as an indication that Tether was, if not fully cash-backed, at least mostly. “76% of its reserves are in cash or cash equivalents, whereas banks only have 10%!”, crowed several people. In both the reserve report and the monthly attestation , Tether takes “reserves” to mean total consolidated assets. The monthly attestations from Moore Cayman essentially say:  1. Tether’s total consolidated assets exceed its consolidated liabilities  2. Tether’s total consolidated liabilities exceed the quantity of tokens in issue  3. Therefore Tether’s reserves exceed the quan...

Below are the slides from my presentation at Beyond Covid on 12th June. The whole webinar can ve viewed here . The pandemic seems to me to resemble the "nuclear disaster" scenarios of my youth: hide in the bunker, then creep out when the immediate danger is over, only to find a world that is still dangerous and has fundamentally changed in unforeseeable ways.  Rabbits hiding from a hawk is perhaps a kinder image, though hawks don't usually leave devastation in their wake. And I like rabbits. So this presentation is illustrated with rabbits, not nuclear bombs.  This is where we were in March/April/May. Hiding in our homes, waiting for the danger to pass: And this is what central banks should have been doing then: To their credit, this is exactly what they did. By supporting sovereign finances and warding off a financial crisis, they enabled fiscal authorities to take the extraordinary measures needed to keep people and businesses alive in their burrows.  Some economists mi...

The Fed's interventions in the repo market are attracting considerable comment. A lot of people seem to think the Fed has embarked on another QE program without Congressional approval. And the usual suspects are complaining that the Fed is pumping up stock prices and debasing the dollar.  Stocks are indeed heading for the moon - though so is the dollar, which rather undermines those who think it is being debauched. But the Fed's interventions in the repo markets have nothing to do with stock prices. They are all about banks. Last September, sudden spikes in the Fed Funds Rate (FFR) and its repo market equivalent, the Secured Overnight Funding Rate (SOFR), caught the Fed off guard. It  acted quickly, injecting copious quantities of reserves to bring the rates down. But this was by any standards a seat-of-the-pants operation. The Fed simply hadn't expected banks to run out of reserves. After all, despite the Fed's balance sheet reduction, total reserves were still fa...

Ever since the secured overnight repo rate (SOFR) spiked to 10% in September, there have been dire warnings that these exceptional movements show the financial system is fundamentally broken. The story goes that the post-crisis financial system is so dysfunctional that it is unable to operate without continual injections of money from central banks. The Fed's attempt to reduce the $4.2tn of reserves it added to the financial system in three rounds of QE has dangerously destabilised the financial system, so it has now had to re-start asset purchases to restore the lost reserves and refloat tottering banks. It's fair to say that much has changed since the financial crisis. Prior to 2008, banks maintained far lower levels of reserves than they do now, typically at or just above their reserve requirement. They borrowed reserves from each other in the unsecured interbank market to settle customer deposit withdrawals and securities transactions. The Federal Reserve intervened ...