JPMorgan Strategists Predict US Fed to Inject $2 Trillion into Banking System to Cushion Crisis

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JPMorgan Strategists Predict US Fed to Inject $2 Trillion into Banking System to Cushion Crisis

According to analysts at JPMorgan Chase & Co, the US Federal Reserve is likely to inject a massive liquidity of up to $2 trillion into the banking ecosystem in a bid to cushion the crisis currently faced by the industry. The move is expected to be implemented through the Fed’s Bank Term Funding Program, which is designed to provide emergency funding to banks that need it. While the largest banks are unlikely to tap the program, the strategists predict that the maximum usage envisaged for the facility is close to $2 trillion, which is the par amount of bonds held by US banks outside the five biggest.

The implosion of Silvergate Bank, Signature Bank, and Silicon Valley Bank (SVB) has led to experts questioning the Federal Reserve’s quantitative tightening and its frantic efforts to fight off inflation. The banking liquidity crisis has stirred a massive plunge in Treasury 2-year yields which fell by 60 basis points this week. The JPMorgan strategists predict that the Fed still has about $3 trillion in the US banking ecosystem, with the majority of the funds owned by the top 5 banks.

Regulators and lawmakers have blamed digital currencies for the woes of the current mishaps in the financial ecosystem, a move that forced regulators to close Signature Bank. In response, the Federal Reserve, the Treasury Department, and the Federal Deposit Insurance Corporation (FDIC) have been pledging support to depositors, a crucial attempt to fund stability in the banking system. Restoring trust among depositors with respect to the safety of their funds can largely prevent future bank runs.

The BTFP can notably be complemented by a more dovish approach and Fed regular prop of the financial ecosystem. Though this prop-up has been tagged as a bailout by many experts, for those in the crypto world, it is considered a move that can trigger the next phase of the bull market. It remains unclear how many more firms could be headed for another bank run, but skipping the interest rate hike will be good to stabilize the banking industry at this time. The US Federal Reserve Open Market Committee is expected to make its decision at the next policy meeting.

The collapse of Silicon Valley Bank and the possibility of a banking liquidity crisis in the United States has shown the frailty of the banking system in the country and around the world. The injection of massive liquidity into the banking ecosystem will be a crucial move in cushioning the current crisis faced by the industry.

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