, advances will be made to"eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress."
The flaw to which SVB and many other"troubled" banks have fallen victim is the age-old systemic problem of"borrowing short to lend long." For centuries, banks have borrowed the money of depositors who expect to have it available on demand, and have invested it in long-term assets that cannot be immediately liquidated. The system works well so long as the depositors don't panic and rush to pull their money out all at once.
Gar Alperovitz, professor emeritus at the University of Maryland, also weighed in on the issue. In a 2012," he noted that the five biggest banks—JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs—had amassed assets amounting to more than half the nation's GDP. He wrote: What constituted a radical departure from capitalist principles in the last financial crisis was not"nationalization" but an unprecedented wave of bank bailouts, sometimes called"welfare for the rich." The taxpayers bore the losses while the culpable management not only escaped civil and criminal penalties but made off with record bonuses. Banks backed by an army of lobbyists succeeded in getting laws changed so that what was formerly criminal behavior became legal.
...Once the state underwrites the deposits or makes alternative funding available as lender of last resort, deposit-based banking is a license to print money. [Emphasis added.]
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