In the office, we have been discussing the U.S. Treasury's "TARP", and we found it interesting that with all of the comments and questions floating around that the Treasury has still not actually funded the banks. On Monday morning though, Reuters reported the following:
The U.S. Treasury will begin sending $125 billion to the first nine banks to sign up for its capital program early this week, and is willing to listen to other industries seeking government assistance, a senior Treasury official said.
David Nason, the U.S. Treasury's Assistant Secretary for Financial Institutions, told CNBC television that the Treasury executed final investment agreements with the nine banks on Sunday.
He declined to rule out capital injections for insurers and other companies but said there were significant questions about how such investments would work and whether they were needed for financial stability.
"We started with the banks because that's targeted to providing credit to the economy, but there are a lot of industries coming in saying they need federal assistance, so we're willing to listen to their asks," Nason said.
Nason said the Treasury was working quickly on plans for reverse auctions to buy distressed assets from banks, but said the initial auctions were still weeks away.
The Fed Takes on LIBOR Rate with Commercial Paper Program
The much-awaited commercial paper backstop program set up by the U.S. government to support the $1.45 trillion market launched Monday, with the Federal Reserve of New York publishing rates companies would pay to tap the facility.
It will take a few days before the impact of the program is felt and to know if the program is improving conditions by getting issuers and investors directly trading with each other.
The Fed has said "several dozen" companies have signed up for the program, called the Commercial Paper Funding Facility, designed to boost this market that companies access for short-term funds.
For three-month debt, the Fed will offer high grade commercial paper issuers 1.88%. For asset-backed commercial paper, the rate was set at 3.88%.
These rates will serve as a benchmark for the market. If the rates offered by the Fed are higher than what issuers offer investors, it should spur investors to lend to them. If the rates are lower, companies may still tap the Fed, even though they have to pay a fee to utilize the program.
Companies registering for the program have to pay an upfront fee of 10 basis points. For unsecured debt, companies also have to pay 100 basis points over the overnight index swap rate on the day of the purchase and a 100 basis points surcharge per year on each trade execution date. For asset-backed paper, issuers have to pay 300 basis points per year.
The Fed has said the higher-than-market rates on asset-backed paper are designed to keep investors and issuers trading with each other.
While the Fed's rates are considered high by market participants, these rates are lower than a key interbank lending rate, the London InterBank Offered Rate (LIBOR), which generally serves as a benchmark for commercial paper.
Bill Gross, chief investment officer at Pacific Investment Management Co. (Pimco), told CNBC on Monday the LIBOR should fall as the Fed sets its average commercial paper purchase rates below it.
According to data from the British Bankers' Association, three-month U.S. dollar Libor edged lower to 3.5075% from Friday's fixing of 3.51625%. The rate peaked at 4.81875% on Oct. 10.
Libor "can't stand at this level," Gross said on CNBC.
Short-term dollar lending rates also could decline this week on an expected interest rate cut by Fed policy-makers at the end of a two-day meeting on Wednesday.
On Monday, traders have fully priced in the chance the Fed will lower the target rate on federal funds, the overnight cost banks charge each other to borrow surplus reserves, to 1.00% from the current 1.50%, according to interest rate futures.
There is a two-day lag between registering for the Fed's backstop program and using it. The Fed will not announce the names of the companies signing up for the program. On Thursday each week, however, the Fed will announce how much issuers accessed through this program.
General Electric and American Express Co. are registered for the program. The companies did not immediately respond to calls about whether they will access funds through the program.
Sources: Reuters, The Wall Street Journal, CNBC
The U.S. Treasury will begin sending $125 billion to the first nine banks to sign up for its capital program early this week, and is willing to listen to other industries seeking government assistance, a senior Treasury official said.
David Nason, the U.S. Treasury's Assistant Secretary for Financial Institutions, told CNBC television that the Treasury executed final investment agreements with the nine banks on Sunday.
He declined to rule out capital injections for insurers and other companies but said there were significant questions about how such investments would work and whether they were needed for financial stability.
"We started with the banks because that's targeted to providing credit to the economy, but there are a lot of industries coming in saying they need federal assistance, so we're willing to listen to their asks," Nason said.
Nason said the Treasury was working quickly on plans for reverse auctions to buy distressed assets from banks, but said the initial auctions were still weeks away.
The Fed Takes on LIBOR Rate with Commercial Paper Program
The much-awaited commercial paper backstop program set up by the U.S. government to support the $1.45 trillion market launched Monday, with the Federal Reserve of New York publishing rates companies would pay to tap the facility.
It will take a few days before the impact of the program is felt and to know if the program is improving conditions by getting issuers and investors directly trading with each other.
The Fed has said "several dozen" companies have signed up for the program, called the Commercial Paper Funding Facility, designed to boost this market that companies access for short-term funds.
For three-month debt, the Fed will offer high grade commercial paper issuers 1.88%. For asset-backed commercial paper, the rate was set at 3.88%.
These rates will serve as a benchmark for the market. If the rates offered by the Fed are higher than what issuers offer investors, it should spur investors to lend to them. If the rates are lower, companies may still tap the Fed, even though they have to pay a fee to utilize the program.
Companies registering for the program have to pay an upfront fee of 10 basis points. For unsecured debt, companies also have to pay 100 basis points over the overnight index swap rate on the day of the purchase and a 100 basis points surcharge per year on each trade execution date. For asset-backed paper, issuers have to pay 300 basis points per year.
The Fed has said the higher-than-market rates on asset-backed paper are designed to keep investors and issuers trading with each other.
While the Fed's rates are considered high by market participants, these rates are lower than a key interbank lending rate, the London InterBank Offered Rate (LIBOR), which generally serves as a benchmark for commercial paper.
Bill Gross, chief investment officer at Pacific Investment Management Co. (Pimco), told CNBC on Monday the LIBOR should fall as the Fed sets its average commercial paper purchase rates below it.
According to data from the British Bankers' Association, three-month U.S. dollar Libor edged lower to 3.5075% from Friday's fixing of 3.51625%. The rate peaked at 4.81875% on Oct. 10.
Libor "can't stand at this level," Gross said on CNBC.
Short-term dollar lending rates also could decline this week on an expected interest rate cut by Fed policy-makers at the end of a two-day meeting on Wednesday.
On Monday, traders have fully priced in the chance the Fed will lower the target rate on federal funds, the overnight cost banks charge each other to borrow surplus reserves, to 1.00% from the current 1.50%, according to interest rate futures.
There is a two-day lag between registering for the Fed's backstop program and using it. The Fed will not announce the names of the companies signing up for the program. On Thursday each week, however, the Fed will announce how much issuers accessed through this program.
General Electric and American Express Co. are registered for the program. The companies did not immediately respond to calls about whether they will access funds through the program.
Sources: Reuters, The Wall Street Journal, CNBC
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