Banks And Their Role as Shadow Central Bankers (Continued)

March 10, 2022

Since the beginning of 2021, the spread available to banks for holding Treasuries has gradually widened, as shown in the table below.

Some might believe that the current inflationary pressure was caused by the necessary Federal Reserve policy to deal with the spread of COVID-19.
On March 31, 2020, near the inception of the crisis and arguably the time of greatest uncertainty, according to, the one-month Treasury bill yielded 5 bp, while the 10-year Treasury yielded 70 bp, for a spread of 65 basis points. The February 4, 2022 spread, at 188 basis points, is almost three times greater than it was at the inception of the disruptions relating to the coronavirus.
Banks have a far greater incentive to purchase Treasury securities now than at the inception of the spread of COVID-19. Therefore, there is no need for the Federal Reserve to continue to purchase U.S. Treasuries—the banks have more than sufficient assets to continue accumulating Treasuries, funding the U.S. federal deficit, which is currently estimated to exceed $2.8 trillion annually (


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