Today we were served a special spectacle on the Federal Reserve’s weekly balance sheet. Total assets dropped by $59 billion in the week, and by $230 billion in the six weeks since peak bank bailout, to $8.50 trillion, as QT continued on track with a big Treasury securities roll-off, and as First Republic, the FDIC, and JP Morgan were splattered all over this balance sheet.
Are you ready for the fun part? Loans to FDIC: +$58 billion in the week, to $228 billion. When JP Morgan acquired the assets of First Republic from the FDIC, it paid the FDIC $182 billion for those assets. The payment came in different forms (we walked through all this in detail here):
- $10.6 billion in cash.
- $92.4 billion by taking on the deposits (liabilities) that are owed the depositors of First Republic.
- $28 billion by taking on the advances First Republic had gotten from Federal Home Loan Banks (FHLB), and which JPM now has to pay off.
- $50 billion loan from the FDIC.
Note the last item. So to boil this down to an example: When you buy a car from a Ford dealer for $50,000, and you pay $2,000 cash down and the dealer arranges a loan through Ford Credit for the remaining balance of $48,000, you will pay $50,000 for the vehicle plus interest over time.Fed’s Balance Sheet Plunges by $230 Billion in 6 Weeks, Biggest such Plunge in 14 Years | Wolf Street