I'm no expert on this, but naturally you'd just expect any large changes to the supplemental leverage ratio to reduce the amount of money available to chase equities.
“The biggest forbearance measure was a move by the Fed in May to exclude treasury bonds and central bank deposits from the leverage exposure measure. That wiped $2 trillion off the SLR denominator, including $619 billion at JP Morgan alone.”
Just one of the regulatory changes implemented by the fed in the response to the economic shutdowns would have reduced the denominator (total assets) for calculating the SLR by $3 trillion for the 6 largest banks (regulatory balance sheets)
“without three critical forbearance measures, some banks such as Citigroup or Goldman Sachs would have been just 30 basis points away from the minimum, which would prompted the Fed to restrict their trading and lending activity.”
-Risky Finance
May 15, 2020, Federal Reserve Press Releas
“The temporary modifications will provide flexibility to certain depository institutions to expand their balance sheets in order to provide credit to households and businesses in light of the challenges arising from the coronavirus response.”
“The interim final rule is effective as of the date of Federal Register publication and will remain in effect through March 31, 2021.”
Update later.
“The biggest forbearance measure was a move by the Fed in May to exclude treasury bonds and central bank deposits from the leverage exposure measure. That wiped $2 trillion off the SLR denominator, including $619 billion at JP Morgan alone.”
Just one of the regulatory changes implemented by the fed in the response to the economic shutdowns would have reduced the denominator (total assets) for calculating the SLR by $3 trillion for the 6 largest banks (regulatory balance sheets)
“without three critical forbearance measures, some banks such as Citigroup or Goldman Sachs would have been just 30 basis points away from the minimum, which would prompted the Fed to restrict their trading and lending activity.”
-Risky Finance
May 15, 2020, Federal Reserve Press Releas
“The temporary modifications will provide flexibility to certain depository institutions to expand their balance sheets in order to provide credit to households and businesses in light of the challenges arising from the coronavirus response.”
“The interim final rule is effective as of the date of Federal Register publication and will remain in effect through March 31, 2021.”
Update later.
Comment:
full excerpt from JPMorgan, courtesy Zerohedge
"We believe that, similar to September, this month's correction offers a good entry point to equity investors over the medium to longer term once US election uncertainty subsides next week. As we explained before, our most holistic measure of equity positioning metrics based on global non-bank investors’ holdings of bonds, equities and cash (M2), points to an equity allocation (equity share) of 39.73% at the moment, still significantly below its post-Lehman period average of just over 42% and well below the cycle high of 47.6% in early 2018. The equity appreciation needed to shift the implied equity allocation of non-bank investors globally from the current 39.73% share to the post Lehman high of 47.6% (Jan 2018) is 47% for the MSCI AC World index and 54% for the S&P500 (given its higher 1.16 beta relative to the MSCI AC World index). The above calculations assume the stock of cash or money supply rises by another 7.5% from here and the stock of debt by another 5% from here. In other words, the upside for equities over the medium to longer term depends more on debt and liquidity creation and thus central bank QE than on fiscal stimulus.
This doesn’t mean that any fiscal stimulus post US election would not have implications for markets. It would, but more in terms of how steep the yield curve or how broad the equity bull market is going to be post the US election, i.e. whether it would encompass value and traditional cyclical sectors or continue to be more narrowly focused on high quality and growth oriented stocks.
It also means that the virus resurgence and the reemergence of lockdowns and growth weakness could bolster the above equity upside via inducing more QE and thus more liquidity creation."
just
"We believe that, similar to September, this month's correction offers a good entry point to equity investors over the medium to longer term once US election uncertainty subsides next week. As we explained before, our most holistic measure of equity positioning metrics based on global non-bank investors’ holdings of bonds, equities and cash (M2), points to an equity allocation (equity share) of 39.73% at the moment, still significantly below its post-Lehman period average of just over 42% and well below the cycle high of 47.6% in early 2018. The equity appreciation needed to shift the implied equity allocation of non-bank investors globally from the current 39.73% share to the post Lehman high of 47.6% (Jan 2018) is 47% for the MSCI AC World index and 54% for the S&P500 (given its higher 1.16 beta relative to the MSCI AC World index). The above calculations assume the stock of cash or money supply rises by another 7.5% from here and the stock of debt by another 5% from here. In other words, the upside for equities over the medium to longer term depends more on debt and liquidity creation and thus central bank QE than on fiscal stimulus.
This doesn’t mean that any fiscal stimulus post US election would not have implications for markets. It would, but more in terms of how steep the yield curve or how broad the equity bull market is going to be post the US election, i.e. whether it would encompass value and traditional cyclical sectors or continue to be more narrowly focused on high quality and growth oriented stocks.
It also means that the virus resurgence and the reemergence of lockdowns and growth weakness could bolster the above equity upside via inducing more QE and thus more liquidity creation."
just
Comment:
rewriting previous comment -- too many typo's lol:
Back in November, a top analyst at JPM was saying that liquidity has become so important that further lockdowns could actually increase share prices because of the chances that it could lead to more quantitative easing..
Crazy..
"Although it has had a negative impact in the short term, the reemergence of lockdowns and resultant growth weakness could bolster the above equity upside over the medium to longer term via inducing more QE and thus more liquidity creation."
If a top analyst at America's largest banks says that he believes liquidity is important enough that a sudden shutdown in economic activity would have less of an affect on equity valuations than liquidity creation, than it only seems logical to assume that a $619 billion addition to the SLR calculation would also be bearish for equities..But again, I'm no expert, lol.
Back in November, a top analyst at JPM was saying that liquidity has become so important that further lockdowns could actually increase share prices because of the chances that it could lead to more quantitative easing..
Crazy..
"Although it has had a negative impact in the short term, the reemergence of lockdowns and resultant growth weakness could bolster the above equity upside over the medium to longer term via inducing more QE and thus more liquidity creation."
If a top analyst at America's largest banks says that he believes liquidity is important enough that a sudden shutdown in economic activity would have less of an affect on equity valuations than liquidity creation, than it only seems logical to assume that a $619 billion addition to the SLR calculation would also be bearish for equities..But again, I'm no expert, lol.
Comment:
The Fed uses three tools to implement monetary policy, the most important being open market operations. These “domestic operations” are conducted for the System only by the New York Fed under direction of the FOMC. Through open market operations, the Fed buys or sells U.S. Treasury securities in the secondary market to produce a desired level of bank reserves. These securities are held in the System’s portfolio, which is known as the System Open Market Account or “SOMA.”
The “primary dealers,” designated by the New York Fed, serve as its counterparties in open market operations and other securities transactions. The Fed adds extra credit to the banking system when it buys Treasury securities from the dealers and drains credit when it sells to the dealers. As the laws of supply and demand take over in the reserves market, the cost of funds for the remaining reserves finds its level at the federal funds rate.
The “primary dealers,” designated by the New York Fed, serve as its counterparties in open market operations and other securities transactions. The Fed adds extra credit to the banking system when it buys Treasury securities from the dealers and drains credit when it sells to the dealers. As the laws of supply and demand take over in the reserves market, the cost of funds for the remaining reserves finds its level at the federal funds rate.
Comment:
"Reserve requirements establish the proportions of demand deposit (checking) accounts and time deposits that must be held as non-interest bearing reserves at Federal Reserve Banks or as vault cash. Reserve ratios are rarely changed, and any major adjustment would be viewed as a very significant monetary policy action. An increase in reserve requirements would be regarded as an attempt to restrict bank credit and restrain economic activity. A reduction in the reserve ratio would be viewed as a stimulative monetary policy move."
--New York Fed
--New York Fed
Comment:
Crazy..
"Although it has had a negative impact in the short term, the reemergence of lockdowns and resultant growth weakness could bolster the above equity upside over the medium to longer term via inducing more QE and thus more liquidity creation."
If a top analyst at America's largest banks says that he believes liquidity is important enough that a sudden shutdown in economic activity would have less of an affect on equity valuations than liquidity creation, than it only seems logical to assume that a $619 billion addition to the SLR calculation would be very bad sign..But again, I'm no expert, lol.