Why is there still a liquidity shortage in the market despite the Federal Reserve's massive easing? [Cheng Tan Masterclass 3.5]

Many people believe that as long as banks hold vast amounts of reserves, liquidity won’t be tight.

But in reality, banks clearly have money, yet would rather watch repo rates spike than lend it out.

Why?

Because of regulatory assessments, capital constraints, and that “discount window” no one dares to touch.

After the SLR exemption expired, banks were forced to reduce reserves;

LCR requires banks to hoard enough safe assets;

Living wills force banks to survive the day’s tightest liquidity crunch;

And the “stigma effect” of the discount window makes banks prefer more expensive borrowing rather than drawing market attention.

In this course, Cheng Tan, founder of Tantum Macro, will systematically break down:

Why did the usage of ON RRP surge and SOFR briefly drop below the floor after the SLR exemption was withdrawn?

How Basel III’s LCR, Dodd-Frank’s living wills, and banks’ internal risk controls continue to increase the demand for reserves?

And why, as the “lender of last resort,” the discount window is a tool banks simply dare not use?