Without Warning

Without Warning explores the complexities of financial stability, banking regulation, central bank policies, financial crises, and the evolving role of digital currencies. It delves into the systemic implications of banking operations, regulatory impacts, central bank interventions, and the intersection of traditional banking with innovations in digital finance.

Financial Stability Banking Regulation Central Bank Policies Financial Crises Digital Currencies and Stablecoins Market Dynamics Banking Operations Monetary Policy Financial Market Interventions Regulatory Impacts on Finance

The hottest Substack posts of Without Warning

And their main takeaways

Does Private Credit Really Reduce Systemic Risk?

235 implied HN points • 17 Jan 24
💰 Finance Banking System Market Trends
  1. Private credit may offer stability due to duration-matched investments and reduced leverage in the banking system.
  2. Money moving into private credit doesn't necessarily reduce overall leverage in the system; just shifts it around.
  3. Private credit's growth can help banks manage capital risks and liquidity challenges, allowing for retranching and reduced regulatory capital requirements.
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Is the Fed Financing the FDIC?

176 implied HN points • 04 Sep 23
💰 Finance Federal Reserve Insurance Banking Liquidity
  1. The FDIC is primarily funded by banking industry fees, not congressional appropriation.
  2. During the Global Financial Crisis, the FDIC did not borrow money from the Fed but instead used clever financial maneuvers like prepayments to maintain liquidity.
  3. The FDIC may be utilizing the Fed's loans as a form of financing, with evidence suggesting that FDIC guarantees are used to back these loans, allowing for liquidity creation.

The Macro Story of SVB Isn't Just About the Fed

196 implied HN points • 05 Jul 23
💼 Business Banking Regulation Economics Risk management Innovation
  1. SVB's business model relies heavily on uninsured deposits to support the innovation sector.
  2. The narrative around SVB's challenges involves blaming the Fed for its interest rate policies and the impact on bank assets and liabilities.
  3. The uniqueness of SVB's model in banking the Silicon Valley innovation economy raises questions about regulatory changes and potential consequences for American innovation.

The Fed & the Central Banking Order of Operations

196 implied HN points • 10 Mar 23
💰 Finance Central Banking Monetary Policy Inflation Communication
  1. Central banks follow a specific order of operations during financial crises, involving rate cuts, quantitative easing, and emergency liquidity facilities.
  2. Dallas Fed President raised the idea of separating asset runoff from rate adjustments, suggesting that the balance sheet and rate policy can be independent during market instability.
  3. Fed officials are discussing the possibility of actively growing the balance sheet during monetary tightening, signaling a potential shift from the traditional central banking order of operations.

An Operation Twist for Treasury Market Stability

196 implied HN points • 27 Nov 22
  1. The Fed may need to consider a strategy like Operation Twist to address potential disruptions in the Treasury market without affecting monetary policy stance.
  2. The Bank of England's response to the gilt market issue might have caused confusion and unnecessary delay in tightening measures.
  3. Central banks, including the Fed, should communicate and implement a flexible intervention strategy to stabilize the market and maintain credibility during times of potential market disruptions.

Does Bank Regulation Really Just Push Risk to the Shadows?

157 implied HN points • 09 Jan 23
  1. Financial supply chain requires scarce capital which is not easily manufactured like leverage
  2. Strong bank balance sheets are vital for financial stability and can provide liquidity without needing market support
  3. Regulations pushing risks out of banks into shadows pose challenges and dilemmas for regulators

Debt Ceiling Headroom: The Fed Has an Extra $14 Billion

137 implied HN points • 17 Jan 23
  1. The Treasury has started taking extraordinary measures to manage the debt ceiling issue
  2. The Fed has $14 billion of debt ceiling headroom that could be used by returning funds from past programs
  3. Returning funds from specific programs could create $14 billion more headroom for the Treasury

Guest Post: Kaleb Nygaard on Secretary Yellen's Legacy

98 implied HN points • 29 Jan 23
  1. Janet Yellen's contributions at the Fed may have a lasting impact on the country's future policies.
  2. Yellen's role at the Treasury included advocating for a global corporate tax minimum and managing sanctions against Russia.
  3. Yellen's legacy as the first woman Fed Chair included shaping the inflation target, predicting the global financial crisis, and advocating for a focus on employment.

On Lehman Brothers & Investment Bank Runs

117 implied HN points • 21 Nov 22
  1. Larry Ball's analysis suggests Lehman Brothers may have been financially solvent despite claims of insolvency by Fed officials.
  2. The Fed's decision not to rescue Lehman was influenced by concerns about the fragile and ephemeral nature of investment banks' franchise value.
  3. The Fed was hesitant to lend to Lehman due to fears of 'lending into a run,' legal constraints, and doubts about the effectiveness of the loan in stabilizing the firm.

The Fed's Reverse Repo Facility & Instability Risks

157 implied HN points • 10 Aug 22
  1. The Fed uses the reverse repo facility to set a floor on target rates and manage reserves.
  2. Reserves and MMFs play a role in banking system dynamics and the effectiveness of Fed policy.
  3. Having reserves accessible in the banking system is crucial for real-time response to liquidity needs.

Improving the Standing Repo Facility

157 implied HN points • 31 Jul 22
  1. Fed officials are looking to tighten financial conditions and use the Standing Repo Facility to prevent future financial disruptions.
  2. The Standing Repo Facility is helpful as a tool in providing liquidity but has limitations during market volatility and liquidity strains.
  3. To improve the effectiveness of the Standing Repo Facility, the Fed could consider making it more market-based by lending against matched positions.

Raising the Barr On Bank Capital

98 implied HN points • 05 Dec 22
  1. Bank capital is essential for banks to lend money
  2. Regulators need to find a balance between setting high capital requirements and allowing flexibility in the financial system
  3. There is a need for a countercyclical capital buffer that can be triggered by individual banks to respond to market conditions

Stablecoins' Ability to Meet Redemptions Is Not the Point

117 implied HN points • 26 May 22
  1. The ability of stablecoins to meet redemptions is not the main focus.
  2. Stablecoins like Tether are more discussed for their safety rather than actual redemptions.
  3. During crypto market selloffs, stablecoins cannot serve as a safe haven due to limitations in supply and cash infusions needed.

Crypto Winter's Next Victim: Short-Term Interest Rates?

98 implied HN points • 06 Jul 22
  1. The crypto market has experienced a significant decline, with the market cap dropping below $900B from over $3 trillion in November.
  2. Stablecoins are primarily for trading and not for holding liquidity, potentially raising questions about their continued necessity.
  3. The liquidation of dollar reserves by stablecoins could pose a risk for the short-term interest rate complex, impacting the funding markets in the event of a financial panic.

The Fed As Derivatives Dealer of Last Resort?

98 implied HN points • 29 Jun 22
  1. Market-based finance changes how crises are handled by the Fed
  2. Central banking tools have evolved as markets have changed
  3. The Fed has experience and authority in dealing with derivatives

Peacetime Bank Stress Tests: Who's That For?

39 implied HN points • 19 Feb 23
💰 Finance Banking Capital Regulation Risk management Investors
  1. The purpose of stress tests for banks in peacetime is not necessarily to predict future crises, but to ensure banks have enough capital and that the tests are tough and variable.
  2. It's important for stress test scenarios to change and remain tough to prevent banks from manipulating their capital levels and misrepresenting their financial health.
  3. The public stress test process during peacetime may not have a significant impact on capital allocation to the banking sector, unlike crisis-time stress tests.

Hiking Beyond When Something Breaks

78 implied HN points • 21 Jun 22
  1. The Fed is raising rates 'until something breaks' to meet its goals, even if it might not directly impact inflation.
  2. Market interventions by the Fed can be used in different ways, not just during dovish times.
  3. The Fed's plan to continue tightening rates may be affected by liquidity needs in financial markets, regardless of broader economic conditions.

Checking in on the Main Street Lending Program

58 implied HN points • 16 Aug 22
  1. The Main Street Lending Program provided emergency liquidity to SMEs and faced unexpected challenges.
  2. Interest rates for MSLP borrowers increased due to changing market conditions.
  3. The MSLP experienced higher expected losses than anticipated, raising questions for future similar programs.

Transcript: former Fed General Counsel Scott Alvarez

58 implied HN points • 20 Jul 22
  1. Former Fed General Counsel Scott Alvarez discussed Fed emergency authorities and interventions
  2. The Fed is legally limited in its ability to buy stocks under Section 13(3)
  3. Fed Chair Powell's stance on whether the Fed could buy stocks was less definitive

Crisis/Time Management at Credit Suisse

39 implied HN points • 07 Oct 22
  1. Time is crucial in a crisis like Credit Suisse's.
  2. Assurances about not raising dilutive capital can backfire.
  3. Post-crisis risk management regulations bolster banks' resilience.

Balance Sheet: the chief shortage?

39 implied HN points • 27 Sep 22
  1. Maintaining strong and resilient bank balance sheets is crucial for supporting the economy during crises.
  2. Bank balance sheets serve as a private-sector defense against financial instability.
  3. Balancing capital requirements is important to prevent both financial crises and market instabilities.

While Stablecoins Fight Innovation-Killing Bank Regulation, Banks Are Innovating

58 implied HN points • 20 Jan 22
  1. JPMorgan has its own blockchain and stablecoin, JPM Coin, for real-time payments and tokenization.
  2. Tassat offers blockchain services to banks for real-time payments, and a network of over 100 banks using a private blockchain.
  3. The USDF Consortium launched a bank-minted stablecoin redeemable at any member bank, posing challenges and benefits.

Stablecoins and the Logistics of Financial Stability

19 implied HN points • 11 Aug 22
  1. Stablecoins import stability but do not create it, draining stability from the financial system.
  2. Major stablecoins like Tether, USDC, and BUSD are increasing transparency around their reserves to reassure users.
  3. Stablecoins are considered a safe haven during market volatility, attracting users to park their funds in them.

Could the Fed Rescue Commodities Markets?

19 implied HN points • 21 Mar 22
  1. Commodities markets are in chaos and central banks might need to intervene
  2. The Fed would need to ensure no expected losses if setting up a facility to support commodities markets
  3. There are constraints on the Fed's authority for emergency lending that need to be considered