In the last issue of Monetary Mechanics, Issue #6, I covered the structure of the market for US Treasury securities with considerable detail. The diagram below highlights the key components that comprise the US Treasury market, as well as the relationships between them, followed by a brief review, if anyone needs it.
You mention in the post that there are a few “deposit creation” steps that are skipped in the QE examples above. Just to make sure I’m clear, do these refer to the deposits technically created by the sale of UST to the Fed for the PD’s account (whether it’s under a BHC or not)?
If it is solely a PD-Fed trade, deposits will be created for the PD’s account at its bank (whether under a BHC or not). If it is a MMF-PD-Fed trade, then the PD will still be left with “new” deposits, right?
Lastly, to be clear, in a MMF-PD-Fed trade, QE expands MMF bank’s balance sheet, holds PD’s bank balance sheet neutral, and expands Fed balance sheet (last one is obvious).
Issue #7: Quantitative Easing and the Federal Reserve’s Role in the US Treasury Market
Hi,
You mention in the post that there are a few “deposit creation” steps that are skipped in the QE examples above. Just to make sure I’m clear, do these refer to the deposits technically created by the sale of UST to the Fed for the PD’s account (whether it’s under a BHC or not)?
If it is solely a PD-Fed trade, deposits will be created for the PD’s account at its bank (whether under a BHC or not). If it is a MMF-PD-Fed trade, then the PD will still be left with “new” deposits, right?
Lastly, to be clear, in a MMF-PD-Fed trade, QE expands MMF bank’s balance sheet, holds PD’s bank balance sheet neutral, and expands Fed balance sheet (last one is obvious).