{"id":3396,"date":"2008-11-23T15:33:30","date_gmt":"2008-11-23T15:33:30","guid":{"rendered":"http:\/\/zmetro.com\/?p=3396"},"modified":"2008-11-23T15:33:30","modified_gmt":"2008-11-23T15:33:30","slug":"has_the_fed_mor","status":"publish","type":"post","link":"https:\/\/www.zmetro.com\/?p=3396","title":{"rendered":"Has the Fed Mortgaged Its Own Future?"},"content":{"rendered":"

Jack Willoughby<\/a>: <\/p>\n

The Fed’s highly leveraged balance sheet will make it hard to fight inflation.


\nIF THE FEDERAL RESERVE BANK WERE A COMMERCIAL LENDER, it would be a candidate for receivership, based on its capital ratios. Bank examiners generally view any lender with a ratio below 2% to be dangerously undercapitalized. The Fed’s current capital ratio, or capital as a percentage of assets, is 1.9%.
\n


\nThe Fed has provided so many loans and emergency credits — to banks, brokers, money funds and foreign countries — that its balance sheet, viewed one way, is as leveraged as any hedge fund’s: Its consolidated assets amount to 53 times capital. Only 11 months ago, its leverage on this basis was a more modest 25 times, and its capital ratio 4%. A caveat: Many of the loans are self-liquidating facilities that will disappear in a few months if the financial crisis eases.


\nAlthough the Fed’s role as a central bank is much different from the role of a private-sector operation, the drastic changes in the size and shape of its balance sheet worry even some long-time Fed officials. Its consolidated assets have swelled to $2.2 trillion from $915 billion in about 11 months, and contain at least a half-dozen items that weren’t there before. Some, like a loan to backstop the purchase of a brokerage, Bear Stearns, are unprecedented. (See table for highlights.)<\/i><\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

Jack Willoughby<\/a>: <\/p>\n

The Fed’s highly leveraged balance sheet will make it hard to fight inflation.


\nIF THE FEDERAL RESERVE BANK WERE A COMMERCIAL LENDER, it would be a candidate for receivership, based on its capital ratios. Bank examiners generally view any lender with a ratio below 2% to be dangerously undercapitalized. The Fed’s current capital ratio, or capital as a percentage of assets, is 1.9%.
\n


\nThe Fed has provided so many loans and emergency credits — to banks, brokers, money funds and foreign countries — that its balance sheet, viewed one way, is as leveraged as any hedge fund’s: Its consolidated assets amount to 53 times capital. Only 11 months ago, its leverage on this basis was a more modest 25 times, and its capital ratio 4%. A caveat: Many of the loans are self-liquidating facilities that will disappear in a few months if the financial crisis eases.


\nAlthough the Fed’s role as a central bank is much different from the role of a private-sector operation, the drastic changes in the size and shape of its balance sheet worry even some long-time Fed officials. Its consolidated assets have swelled to $2.2 trillion from $915 billion in about 11 months, and contain at least a half-dozen items that weren’t there before. Some, like a loan to backstop the purchase of a brokerage, Bear Stearns, are unprecedented. (See table for highlights.)<\/i><\/p><\/blockquote>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[39,35,9,17],"tags":[],"_links":{"self":[{"href":"https:\/\/www.zmetro.com\/index.php?rest_route=\/wp\/v2\/posts\/3396"}],"collection":[{"href":"https:\/\/www.zmetro.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.zmetro.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.zmetro.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.zmetro.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3396"}],"version-history":[{"count":0,"href":"https:\/\/www.zmetro.com\/index.php?rest_route=\/wp\/v2\/posts\/3396\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.zmetro.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3396"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.zmetro.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3396"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.zmetro.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3396"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}