Hey everyone, it’s Firoz and I’m here to break down the massive announcement by the #Fed and US policymakers that just happened today.

You know I’m all about giving you the real value and cutting through the noise, so let me tell you what this means for you and your business.

The Fed just stepped in and rescued two major banks, #SVB and #SignatureBank , from going bankrupt. These banks were in trouble because they had a lot of bad loans and deposits that they couldn’t pay back.

The Fed did two things:

  1. They made sure that all the depositors of these banks got their money back. That means if you had an account with SVB or Signature Bank, you don’t have to worry about losing your cash. You can access it starting Monday, March 13.

  2. They created a new facility called Bank Funding Term Program (BFTP) to provide liquidity to banks under stress. That means if other banks face similar problems in the future, they can borrow money from the Fed by posting their bonds as collateral.

This is huge, because it prevents a domino effect of bank failures that could have crashed the whole financial system. #buildtogether

But here’s the catch:

  • The shareholders and certain unsecured debtholders of these banks will not be protected. That means if you invested in these banks’ stocks or bonds, you’re out of luck. You just lost your money. Sorry equity investors, do your homework.

  • The bonds that the banks post as collateral will be valued at par. That means the Fed will ignore the market value of these bonds, which could be much lower than their face value. This is a sweet deal for the banks, because they can get rid of their junk bonds and get cash in return.

  • The funding that the banks get from the Fed will be at 1-year OIS plus 10 bps spread on top. That means the banks will pay a very low interest rate to borrow money from the Fed, based on the market expectation of the Fed Funds rate plus a small premium. This is also a great deal for the banks, because they can get cheap funding for a long time.

So what does this mean for you?

Well, it depends on how you look at it.

On one hand, this is good news for the economy and the stability of the banking system. It shows that the Fed is willing and able to act swiftly and decisively to prevent a financial crisis. It also shows that the Fed is supportive of innovation and entrepreneurship, because SVB and Signature Bank are known for serving tech startups and crypto companies.

On the other hand, this is bad news for the moral hazard and the fairness of the market. It shows that the Fed is bailing out some banks that made bad decisions and took excessive risks. It also shows that the Fed is favoring some banks over others, by giving them preferential treatment and access to cheap funding.

So how do you feel about this?

Are you happy that your money is safe and that the economy is stable?

Or are you angry that some banks got away with their mistakes and that the market is rigged?

Let me know in the comments below.

And remember, this is not financial advice. This is just my opinion based on what I read and what I think. #crypto2023

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