Wells Fargo asset cap relief absorbs treasuries
The guest argued that the removal of Wells Fargo's asset cap allows the bank to expand repo lending, helping the private sector absorb treasuries as the Fed shrinks its balance sheet.
The argument
Shrinking the Fed's balance sheet requires private sector capacity to hold treasuries. The guest noted that Wells Fargo immediately began lending hundreds of billions in repo after its asset cap was lifted, a trend expected to continue as the Fed steps back.
The thesis, stress-tested
✓ What validates it
- ✓Continued expansion of Wells Fargo's repo lending volumes in quarterly reports
- ✓Successful absorption of treasury issuance by the private sector without repo market spikes
▸ Risks discussed
- ▸The process of the Fed shrinking its balance sheet is slow and requires sustained private sector demand
- ▸Potential regulatory shifts or capital requirement changes could restrict bank balance sheets
Hear it yourself
"I expected Kevin Walsh to be the Kevin begging for the job. He came out and he was like, the Kevin, you always knew it was there. So I think it was a pretty hawkish shot. I think that the market reaction is in line with the hawkish Fed. He has been a champion of having less Fed communication, and he put that into practice right away."
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